Federal Court of Australia

Elanor Funds Management Ltd v Alceon Group Pty Ltd [2023] FCA 1291

ORDERS

THE COURT ORDERS THAT:

1.    The proceeding is dismissed.

2.    Any application for costs is to be made in writing, within 14 days of the publication of these reasons, limited to no more than five pages.

3.    Any response to an application for costs is to be made in writing within 7 days thereafter, limited to no more than five pages.

4.    Subject to any further order of the Court, the question of costs will be determined on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MCELWAINE J:

Introduction

1    This proceeding concerns the sale of a shopping centre where the purchaser contends that the vendor and its agent engaged in misleading or deceptive conduct prior to completion of the sale. It is a no transaction case: if the conduct had not been engaged in, the purchaser would not have contracted to buy the asset. The purchaser is Elanor Funds Management Ltd (applicant or Elanor). The vendor is Alceon Group Pty Ltd (Alceon) and its agent is CPRAM Investments Pty Ltd (CPRAM). At times in this judgment it is convenient to simply refer to Alceon and CPRAM as the respondents.

2    The Bluewater Square Shopping Centre (Centre) is situated at Redcliffe in Queensland, approximately 30 kilometres north of Brisbane. It is proximate to the coast. The Centre was constructed in 2008 as a neighbourhood shopping complex comprising 49 tenancies with a Woolworths Supermarket as the anchor tenant, two mini-major tenants, 28 specialty shops, five kiosks, three ATMs, eight upper level commercial tenants and two basement tenants with an aggregate gross lettable area of 10,000 m2. The site comprises 1.356 ha with an underground car park for 311 vehicles plus adjoining car parks offering an additional 339 spaces.

3    In May 2017, Alceon sought expressions of interest from persons to participate in a sale of the Centre closing on 30 May 2017. In that process it prepared and issued an Information Memorandum and provided it to Elanor on 2 May 2017 (Information Memorandum). On or about 30 May 2017, Elanor submitted an expression of interest to Alceon to purchase the Centre for $54.75 million. Alceon did not accept that expression of interest and, after the sale to an alternative purchaser failed to complete, invited Elanor to submit a further proposal.

4    On 18 August 2017, Alceon and Elanor entered into a Heads of Agreement in relation to a potential sale of the Centre. The Heads of Agreement was expressed so as not to create any binding legal relationship between the parties, save as to an exclusive dealing period and confidentiality. The purchase price was $55.25 million as a going concern. An exclusive dealing period of 20 business days was agreed, commencing on 21 August 2017 and concluding on 15 September 2017 during which period, Elanor would conduct due diligence. Amongst other things, the Heads of Agreement contained a number of special conditions including that the fully leased income and passing net operating income of the Centre as at 1 December 2017, was $4,266,720 and $3,907,170 respectively. Elanor conducted due diligence, including by reference to material made available by Alceon and CPRAM in an electronic data room. Elanor also engaged Mr Alexander Hamilton of the firm CBRE Pty Ltd (CBRE) to undertake due diligence on its behalf. On being satisfied as to the extent of due diligence undertaken, in early September 2017, the directors of Elanor executed a circulating resolution, the effect of which was to authorise officers of Elanor to enter into a Put and Call Option Agreement to purchase the property dated 15 September 2017 (Option Agreement). On or about 23 October 2017, Elanor exercised the call option in the Option Agreement and as a consequence Elanor and Alceon became contracting parties for the sale of the Centre pursuant to a Sale Contract dated 23 October 2017 (Sale Contract) for a price of $55,250,000, less certain adjustments at settlement.

5    The Sale Contract settled on 1 November 2017, when Elanor became the registered proprietor by transfer. In this proceeding, as finally resolved in closing submissions, Elanor contends that Alceon and CPRAM made various representations to it concerning incentives that had been provided to a number of Food Court Tenants (as defined at paragraph 27 below), the correctness of tenancy arrears reports for the Food Court Tenants and that the rent that Elanor should expect to receive from all of the tenants was in accordance with a rental return representation equivalent to the net operating passing income of $3,870,759 per annum. Elanor contends that these representations were misleading or deceptive or likely to mislead or deceive within the meaning of s 18 of the Australian Consumer Law, which is schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL and Act). Elanor also contends that Alceon and CPRAM engaged in misleading or deceptive conduct in failing to disclose the true position of rental arrears, actual incentives and deferrals of the lease commencement dates of certain of the Food Court Tenants.

6    Elanor pleaded a substantial claim for damages calculated by reference to the difference between the purchase price paid by it and the true value of the Centre at the time of purchase. In accordance with the valuation evidence that it relies upon, the true value of the Centre was $49 million and therefore the primary claim for damages is in the order of $6 million.

7    At trial, Mr A Fernon SC appeared with Ms E Keynes for Elanor, Mr M Henry SC appeared with Mr D Delaney for Alceon and Mr P McQuade KC appeared with Mr S Monks and Ms K Boomer for CPRAM. Despite the number of issues and large quantity of documentary evidence, the trial was conducted efficiently and sensible agreement was reached on a number of matters between counsel.

8    For the detailed reasons that follow, I have concluded that Elanor has failed to prove to the civil standard the misleading and deceptive conduct that it relies upon and that in any event if I am wrong in that conclusion, then Elanor has failed to establish that it relied upon that misleading or deceptive conduct and further, has failed to prove that it suffered damage because of that conduct and the claimed reliance. Accordingly, the proceeding must be dismissed.

Parties, documentary evidence and witnesses

9    I commence with the applicant.

10    Elanor is the responsible entity of the Elanor Investment Fund which is a registered managed investment scheme operated pursuant to a trust. Units in the trust form part of stapled securities that are listed on the Australian Stock Exchange. It is a corporation within the Elanor Investors Group which conducts an investment and funds management business.

11    Mr Blake McNaughton since July 2019 has been employed by Elanor as an executive director within the office of the chief executive officer. Mr McNaughton holds a Bachelor of Commerce with majors in information systems management and management. As at August 2017, he had in excess of five years’ experience in analysing potential investments and in determining investment yields in order to identify investment opportunities for Elanor.

12    Mr Michael Baliva is employed by Elanor as its co-head of real estate, a position he has held since 2014. Mr McNaughton reported to Mr Baliva as to the outcome of the assessments that he made concerning a prospective acquisition of the Centre by Elanor. Mr Baliva’s primary role was to report to Elanor’s board in relation to the proposed acquisition, and following the board resolution, his role was to negotiate the purchase terms, including the purchase price. He performed this work in conjunction with Mr McNaughton.

13    Mr Alexander (Sandy) Hamilton in August 2017 was employed as the regional director for investment advisory services by CBRE. He is experienced in performing due diligence investigations for investors buying or selling multi-tenanted properties, including regional and sub-regional shopping centres in Australia. In August 2017, he was engaged by Mr McNaughton to undertake a due diligence assessment in relation to the Centre for Elanor.

14    Ms Anna-Maree Coco has extensive experience in managing shopping centres in Queensland. Between May 2016 and November 2017, she was employed by Savills (QLD) Pty Ltd (Savills) as the on-site property manager at the Centre. Savills in turn was engaged by Alceon as manager of the Centre pursuant to an agreement dated 19 December 2015.

15    Mr Paul Kwan is a registered valuer and is the head of valuation and advisory at Knight Frank Valuation and Advisory, Queensland. He was first engaged by Mr McNaughton on 21 August 2017 to prepare a valuation of the Centre for mortgagee purposes. Pursuant to that engagement, and a letter of instruction from the Bank of Queensland, he produced a market valuation report dated 6 September 2017 pursuant to which he calculated the market value of the Centre at $55.25 million exclusive of GST assuming a capitalisation rate of 7%. He was again engaged by Mr McNaughton on 2 September 2021 to prepare a “retrospective indicative valuation” of the Centre on the assumption that nine of the food court tenancies were vacant at a total gross annual rental loss of $701,448. Pursuant to that engagement, Mr Kwan on 15 September 2021, provided some “draft calculations” which valued the Centre at $52.5 million assuming a capitalisation rate of 7% and which he later revised on 17 September 2021, following correspondence with Mr McNaughton, to $51 million assuming a capitalisation rate of 7.75%.

16    Later on 12 December 2022, Mr Kwan was engaged as an independent expert witness for Elanor by its solicitor and in that capacity authored his expert report dated 22 December 2022. In it he expresses the opinion that the market value of the Centre as at 1 November 2017 was $49 million exclusive of GST assuming a capitalisation rate of 7.25%.

17    Mr Matthew Gwynne is a chartered accountant who was engaged by Elanor’s solicitors to undertake a review of the respondents’ expert accounting report prepared by Mr Bradley Hellen, who in turn undertook a financial reconciliation of rental charges paid and received by each of the Food Court Tenants together with a reconciliation of incentives, abatements and security deposits. Mr Gwynne prepared an expert report dated 21 June 2023.

18    I deal next with the respondents’ witnesses.

19    Mr Frenil Shah is a director of CPRAM and holds degrees in management studies and financial management. Alceon engaged CPRAM pursuant to the terms of an investment management agreement dated 13 December 2012, pursuant to which CPRAM acted on behalf of Alceon as an asset manager in the day-to-day management and administration of the Centre. In 2017 he acted as the portfolio manager for CPRAM in relation to four shopping centres, including the Centre. Mr Shah’s responsibilities extended to supervising centre managers and liaising with external contractors and consultants. In particular, as portfolio manager he was responsible for the oversight of day-to-day management and administration of the Centre, financial analysis and reporting as well as direct liaison with the tenants. Specifically in relation to the Centre, Mr Shah supervised a leasing manager, Mr Carrigan, an analyst, Mr Song and a junior analyst, his brother, Mr Neil Shah. It was on his recommendation that Alceon engaged Savills as the property manager for the Centre.

20    Mr Oliver Sicouri is the founding director of CPRAM. He holds a law degree, is admitted as a solicitor and barrister and is also a licensed real estate agent.

21    Ms Fiona Hansen is a qualified chartered accountant and a senior managing director for the valuation practice FTI Consulting. She was jointly engaged by the solicitors for the respondents as an expert witness in relation to the undertaking of financial due diligence investigations. Pursuant to that engagement, she prepared an expert opinion report dated 28 April 2023.

22    Mr Bradley Hellen, as I have noted, was engaged by the respondents’ solicitors to undertake accounting reconciliations of rental charged to and paid by the Food Court Tenants between December 2016 and October 2017. In addition, his engagement extended to a reconciliation of security deposits and bank guarantees, tenancy arrears reports, the commencement date of relevant leases and a reconciliation of various incentives as provided to the Food Court Tenants. Mr Hellen prepared an expert witness report dated 3 May 2023.

23    Mr Michael Goran is a qualified and registered valuer and a senior valuer of the firm Field & Kaye. He was jointly engaged, together with another valuer Mr Field, to prepare a market valuation of the Centre as at 1 November 2017. He is one of the authors of the report prepared in consequence dated 26 May 2023. Based on the assumptions contained in the report, Mr Goran and Mr Field concluded that the market value of the Centre was $57 million exclusive of an added development potential value of $1,700,000 assuming a capitalisation rate of 7.25%. Ultimately, only Mr Goran gave evidence before me.

24    The expert accountants and valuers, pursuant to case management orders, attended a conference before a Registrar of the Court for the purpose of conferring and producing joint expert reports as set out at Pt 7 of the Expert Evidence Practice Note (GPN-EXPT). Mr Hellen and Mr Gwynne produced a joint report dated 30 June 2023 and Mr Kwan and Mr Goran produced a joint report dated 28 June 2023. Save for separate cross-examination of Mr Kwan on issues relating to his independence, the accounting and valuation expert evidence was given concurrently.

25    In addition, the parties prepared an extensive court book of documents, initially comprising approximately 5,300 pages, which was then supplemented with hundreds of pages of further documentation during the course of the trial. Faced with such a large amount of documentation, I required each counsel to prepare a tender list, limited only to the documents relied on by each party. At the commencement of each oral closing submission, the tender list of each party was received as identifying and comprising only the documents relied upon, which I then received into evidence. In proceeding in this way, I made it clear to all counsel that I would not refer to any document in the court book, or the separate tender bundles, that is not referred to in the tender lists.

Issues on the pleadings

26    Elanor opened its case in accordance with the issues as framed in its Amended Statement of Claim dated 19 June 2023. By the conclusion of the trial, it abandoned a number of contentions there pleaded. As I explain in these reasons, how the applicant’s case evolved is important in resolving the issues. The claim essentially concerns nine Food Court Tenants at the Centre and whether they were in rental arrears, the commencement dates of the leases for those tenants, the expected passing base rent of the Centre and the extent to which individual Food Court Tenants had received incentives that were not disclosed in documents produced to Elanor during the due diligence period.

27    The Food Court Tenants in issue are:

(1)    Dizzy Dukes, an American style bar and grill;

(2)    Burrito Bar, a Mexican restaurant;

(3)    Bel Cibo, an Italian restaurant;

(4)    Mass Nutrition, a supplier of fitness supplements;

(5)    Kebab Express, a fast food outlet;

(6)    Sushi Kuni, a Japanese style fast food outlet;

(7)    Mumbai Blues, referred to as Mumbai Blue in some documents, an Indian restaurant;

(8)    Thai Me Down, a Thai restaurant; and

(9)    Redcliffe Noodle Kitchen, an Asian noodle restaurant.

28    These were not the only food tenancies in the Centre at the time, but each was situated in the Centre’s casual dining precinct and were proximate to each other. Some of these tenancies had external access. The tenancy occupation percentages at the Centre were:

29    The Information Memorandum depicted the location of each Food Court Tenant within the Centre and expressly stated the Centre net operating income (fully leased) at $4,230,309 and the net operating income (passing) at $3,870,759 each per annum. Net passing income is a term of art amongst valuers. It is an annualised calculation based on the net rental that is received at a point in time. In this case the Information Memorandum expressly stated that the passing income “reflects the tenancy information forecast to 30 June 2017 and is based upon estimated expenditure as shown in the FY17 Budget. A detailed tenancy schedule is available in the online data room.”

30    Elanor contends that the data room contained copies of leases for each of the Food Court Tenants, Incentive deeds for seven of those tenants (excluding Bel Cibo and Sushi Kuni) and a document for each month between December 2016 and July 2017 in the form of a Tenant Arrears Report. As will become apparent from these reasons, many more documents were contained in the data room. However, a primary contention of Elanor (opened on its case), is that the Tenant Arrears Reports “did not identify any of the [Food Court Tenants] as being in arrears for any amount” and further that no other arrears report nor any other documents were provided which recorded tenancy arrears between December 2016 and July 2017, save for the report of July 2017 which recorded total arrears in that month of $2,957.05 for five tenancies that are not the subject of complaint by Elanor.

31    Elanor also relies on the content of a discussion between Mr Hamilton and two employees from his office, and Mr  Shah on 30 August 2017 (the 30 August Meeting) during which, and in answer to questions put to him, it is said Mr Shah did not identify any of the Food Court Tenants as having outstanding arrears, or being in receipt of abatements or incentives beyond those disclosed in the relevant Incentive deeds or otherwise as having any adverse issues in relation to sales, the ability to pay rent or to satisfy other obligations under their leases. There is significant dispute as to the content of the discussion at that meeting.

32    Based on the disclosed information, Elanor pleads that the passing base rent per annum and the outstanding abatements as set out in the tenancy schedule and the outstanding incentive schedules was:

33    The Elanor pleading then moves to the central allegations of falsity that each of the Food Court Tenants between December 2016 and 1 November 2017 at various times were in arrears in paying the rent and in discharging other obligations under their leases and further, had received incentives and other benefits that were not disclosed in the leases and incentive deeds. The pleading in this respect is very detailed and is a matter that I focus on when finding the material facts.

34    The misleading conduct claim is pleaded by reference to a number of express and implied representations together with a misleading conduct case anchored by a failure to disclose relevant matters. The pleading is quite complex and detailed. Parts of it were abandoned by the time of closing submissions. With due deference to the pleading ability of Mr Fernon for Elanor, the claim as framed in opening the case may be reduced to the following contentions of express or implied misleading conduct. Representations that:

(1)    The passing base rent per annum for each tenant listed in the tenancy schedule was correct (Passing Base Rent representation);

(2)    The amount of rent actually payable to Alceon between May and 1 November 2017 was the rent specified in each lease less any adjustment under an incentive deed (Rent Representation);

(3)    The outstanding incentive schedules were correct (Outstanding Incentive Schedule Representation);

(4)    The Incentive deeds were a correct and complete record of all abatements and incentives (Incentive Representations);

(5)    The Food Court Tenants with Incentive deeds had been invoiced for rent and other charges since the rent commencement date in each incentive deed and had paid those amounts (Commencement Date Representation);

(6)    The Tenant Arrears Reports, including a further arrears report for October 2017, were correct and complete statements of all amounts not paid by each of the Food Court Tenants in the month corresponding to the report period and that all other invoiced amounts had been paid in full (Arrears Representations); and

(7)    The rent that Elanor should expect to receive from tenants was in accordance with the passing Base Rent Representation and or the Rent Representation (Rental Return Representation).

35    Elanor’s case shifted at the point of closing submissions. It abandoned the claims of undisclosed rental arrears for Kebab Express, Thai Me Down and Mass Nutrition; abandoned the Commencement Date Representation claims in relation to Bel Cibo, Sushi Kuni and Mass Nutrition and abandoned the express representation misleading conduct claims relating to: (1) the Passing Base Rent Representation, (2) the Rent Representation, (3) the Outstanding Incentive Schedule Representation and (4) the Incentive Representations.

36    In consequence, that leaves for determination as issues on the pleading that the express or implied representations were misleading or deceptive or likely to mislead or deceive in three respects being claims (5), (6) and (7). The pleading of these claims received significant attention in the respondents’ closing submissions and for that reason I set them out.

37    First, at [44] of the Further Amended Statement of Claim (FASOC):

(e)    the Food Court Tenants subject to an incentive deed had been invoiced for rent and other charges since the rent commencement date listed in their respective incentive deed and had paid rent and other charges since the rent commencement date listed in their respective incentive deed (Commencement Date Representation);

Particulars

The Commencement Date Representation is partly express and partly implied.

(i)    In so far as it is express, it arises from the content of the Leases in respect of the rent commencement dates and rent due subject to the incentive deeds and Tenants Arrears Reports.

(ii)    In so far as it is implied, it arises from the circumstances in which such documents were provided in the absence of any other document or information to advise the commencement dates had not been deferred.

(iii)    In so far as it was oral, it arises from the matters and conversations pleaded in paragraphs 25 and 26 above.

38    Second:

(f)    The Tenant Arrears Reports and the October Arrears Report were correct and complete statements of all amounts which had not been paid by the Food Outlet tenants in the corresponding month for that report from all previously rendered invoices and that all amounts in invoices rendered in the months prior to the month of the respective report had otherwise been paid in full by the tenants of the respective Food Outlets (Arrears Representations);

Particulars

The Arrears Representations are partly express, partly implied and partly oral.

(i)    In so far as they are express, they are contained in the Tenant Arrears reports and the October Arrears Report.

(ii)    In so far as they are implied, they arises from the circumstances in which the Tenant Arrears Reports and the October Arrears Report were provided and absence of any other document or information of a similar nature for different periods or difference [sic] tenants being provided.

(iii)    In so far as they are oral, they arise from the matters and conversations pleaded in 25 and 26 above.

39    Third:

(g)    the rent that Elanor should expect to receive from tenants was in accordance with the Passing Base Rent Representation and/or the Rent Representation (Rental Return Representation);

Particulars

The Rental Return Representation is implied and arises from the content of the Passing Base Rent Representation and the Rent Representation together with the content of each of the representations referred to in 44 of this claim.

40    By the time of closing submissions, Elanor’s case as to why it is said that each of the remaining representations were incorrect, contained material omissions or understated the true quantum of arrears for the Food Court Tenants, reduced to three subparagraphs in the FASOC at [46]:

(e)    The Commencement Date Representation was incorrect and contained material omissions in respect of the Food Court Tenants.

Particulars

(i)     Dizzy Dukes’ rent commencement date was allegedly deferred from 14 May 2017 to 1 June 2017 and it did not pay rent and other charges due from July 2017 (see paragraph 42 (h) in relation to Dizzy Dukes).

(ii)     Burrito Bar’s rent commencement date was allegedly deferred from 1 March 2017 to 14 May 2017 and it did not pay rent and other charges from the date of rent commencement set out in its incentive deed (see paragraph 42 (d) and (e) in relation to Burrito Bar).

(iii)     Mass Nutrition’s rent commencement date was allegedly deferred from 1 April 2017 to 1 May 2017 and it did not pay rent and other charges from the date of rent commencement set out in its incentive deed (see paragraph 42 (d) and (e) in relation to Mass Nutrition.

(iv)     Kebab Express’ rent commencement date was allegedly deferred from 30 April 2017 to 1 June 2017 and it did not pay rent and other charges from the date of rent commencement set out in its incentive deed (see paragraph 42 (d) and (e) in relation to Kebab Express).

(v)     Mumbai Blues’ rent commencement date was alleged [sic] deferred from 14 April 2017 to 1 May 2017 and it did not pay rent and other charges from the date of rent commencement set out in its incentive deed (see paragraph 42 (d) and (e) in relation to Mumbai Blues).

(vi)     Thai Me Down’s rent commencement date was allegedly deferred from 14 June 2017 to 1 July 2017 and it did not pay rent and other charges from the date of rent commencement set out in its incentive deed (see paragraph 42 (d) and (e) in relation to Thai Me Down).

(vii)     Red Noodle Kitchen’s rent commencement date was allegedly deferred from 14 May 2017 to 25 June 2017 and it did not pay rent and other charges from the date of rent commencement set out in its incentive deed (see paragraph 42 (d) and (e) in relation to Red Noodle Kitchen).

(f)     Further, or in the alternatively, the Arrears Representations were incorrect and understated in respect of the Food Outlets;

Particulars

(i)     See paragraph 42.

The Food Court Tenants subject to incentive deeds were not paying rent until deferred dates which had the effect that the Tenants Arrears Reports did not provide evidence of those tenants paying rent by the date it was due and not being in arrears (see the particulars to paragraph 46 (e)).

(g)     by reason of the matters pleaded in sub-paragraphs in (a) to (f) above, the Rental Return Representation was incorrect and overstated in respect of the Food Outlets.

Particulars

See paragraph 42.

41    Turning next to the misleading conduct by omission case, it has two remaining elements. First, Elanor contends that it had a reasonable expectation that the respondents would have disclosed any arrears of more than 30 days owed by any of the Food Court Tenants within the period December 2016 to October 2017 and that the failure to do so gave rise to a reasonable expectation by Elanor that none of the Food Court Tenants were in arrears for more than 30 days during that period. This aspect of the case is labelled in the pleading as the Conduct. Secondly, in relation to Dizzy Dukes, Burrito Bar, Mass Nutrition, Kebab Express, Mumbai Blues, Thai Me Down and Red Noodle Kitchen, Elanor had a reasonable expectation that if the rent commencement date was later than that set out in each incentive deed, the respondents would have disclosed to it that fact and that if there were rental arrears for August, September or October 2017 that fact would also have been disclosed. The failure to disclose these matters was, in the particular circumstances, misleading or deceptive or likely to mislead or deceive Elanor. This is labelled in the pleading as the Deferral Conduct.

42    In reliance on each and every one of the three remaining representations, the Conduct and the Deferral Conduct, Elanor contends that it entered into the Option Agreement, exercised the call option and entered into and ultimately performed the Sale Contract. In the event that Elanor had known that the impugned representations and or conduct was incorrect or “omitted material information” then Elanor would have paid less than the purchase price to acquire the Centre or, if that had not “been possible” it would not have entered into the Sale Contract and would not have purchased the Centre. By the time of closing submissions, however, Elanor did not press the alternative price (alternative transaction) case. Mr Fernon for Elanor assented to a proposition that I put to him that, on the evidence, if Elanor had known the true position that would have materially affected the purchase price calculation that Mr McNaughton undertook with the result that Alceon would not have accepted a price less than $55.25 million. Thus, this is a no transaction case: Hughes-Holland v BPE Solicitors [2018] AC 599; Wyzenbeek v Australasian Marine Imports Pty Ltd (in liq) [2019] FCAFC 167; 272 FCR 373 at [105]-[109] (Rares, Burley and Anastassiou JJ).

43    To establish that the representations, Conduct and Deferral Conduct were misleading or deceptive, Elanor pleads in detail what it contends was the true position, primarily by reference to business records made available to it after settlement of the sale and which are set out in detail in an affidavit of Mr McNaughton made on 9 December 2022. That portion of his affidavit was admitted into evidence not as proof of the facts there summarised, but as limited to his understanding of the records. The records are in evidence. What those records establish is the subject of detailed evidence from the accountants and submissions from counsel that I resolve later in these reasons.

44    Finally on the loss or damage question (s 236 of the ACL), Mr Fernon accepts that in order to succeed, Elanor must prove that the price paid for the Centre was more than its true value at the time of purchase and reliance is placed on the expert evidence of Mr Kwan. He also accepts that the principle in Potts v Miller (1940) 64 CLR 282 guides the approach to the assessment of damages, but of course is not to be regarded as the test pursuant to s 236. The correct approach is to award an amount for damages which best accords with the remedial purpose of the ACL: Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388; Henville v Walker [2001] HCA 52; 206 CLR 459 (Henville). Elanor does not contend that it suffered detriment in a more general way: cf Harvard Nominees Pty Ltd v Tiller [2020] FCAFC 229; 282 FCR 530 at [72]-[76] (Lee, Anastassiou and Stewart JJ).

45    The respondents join issue in their pleadings on the material questions of misleading or deceptive conduct, reliance, damage and damages. They also rely on positive defences. Alceon draws attention to several of the express statements in the Information Memorandum including that no representation or warranty was made as to the accuracy of the net operating income (fully leased) or net operating income (passing) representations. Alceon accepts that there were construction delays in undertaking the project to remodel the casual dining precinct, which delays consequentially impacted on the ability to provide possession to six of the Food Court Tenants in accordance with the lease commencement dates. As a result, Alceon agreed to defer the rent commencement dates, corresponding with the respective periods of delay. On its case, this fact was known to Elanor during the due diligence period. In a detailed way, Alceon pleads to each of the rental arrears, lease commencement and incentive contentions of Elanor by way of positive assertion. In particular, and in answer to Elanor’s claim that the Tenancy Arrears Reports did not relevantly disclose any arrears for Food Court Tenants, Alceon pleads that the arrears reports “represented that the rental arrears of the tenants referred to in those reports were as stated in the reports as at the date upon which the reports were printed” and in consequence do not bear the objective construction of Elanor.

46    Alceon pleads in the alternative that if it engaged in misleading or deceptive conduct, then CPRAM is a concurrent wrongdoer within the meaning of ss 87CB and 87CD of the Act. Recognising the difficulty of how that could be so when CPRAM was Alceon’s agent, Mr Henry abandoned this defence by the time of his closing submission.

47    In material respects CPRAM’s defence corresponds with that of Alceon where issue is joined with the claims made by Elanor, although, and in considerably more detail, CPRAM responds to each of the contentions made by Elanor in relation to the arrears position, the lease commencement dates and the incentives provided to each of the Food Court Tenants. On the reliance question, CPRAM pleads that Elanor had access to the data room and the ability to undertake its own due diligence, did so by itself and by retaining Mr Hamilton as a consultant, was experienced in undertaking due diligence of commercial properties (in particular shopping centres) and places reliance upon the terms of the Sale Contract to the effect that the due diligence material may include estimates and projections which may not be correct and that Elanor had examined for itself and had satisfied itself of all relevant matters during the due diligence period. Further, CPRAM contends that a motivating factor for Elanor was the development potential of the Centre in the form of a mixed residential and commercial use. In that context, CPRAM contends that if the representations were made and the conduct engaged in was misleading or deceptive then they were immaterial in the context of the Centre’s overall value, including its anticipated value as a result of its development potential.

48    CPRAM relies on two proportionate liability defences. One, that Alceon is a concurrent wrongdoer by reason of the matters pleaded by Elanor against it and the other, that CBRE is a concurrent wrongdoer in that it failed to make sufficient inquiries during the due diligence in breach of its duty to exercise reasonable care pursuant to its engagement with Elanor. Finally, CPRAM pleads that if Elanor suffered loss and damage, then it contributed to that damage within the meaning of s 137B of the Act by failing to undertake and/or investigate matters which a reasonable person in the position of Elanor would have undertaken in the circumstances. In this regard, CPRAM places particular reliance upon the expert evidence of Ms Hansen.

The primary facts

49    The parties managed to agree a somewhat narrow and limited set of facts in the form of the Statement of Agreed Facts dated 6 July 2023. Regrettably a large number of facts which ultimately were not in issue between the parties were not referred to in that document, despite case management orders that I made and which required the legal representatives for the parties to attend before a registrar of the Court in order to agree uncontentious facts. However, by the time of the trial, and the involvement of counsel, the territory of factual dispute narrowed considerably. To the extent that the Statement of Agreed Facts remains of utility in resolving the issues, I record the following.

50    On 13 December 2012, Alceon and CPRAM entered into an investment management agreement. By it, establishment of the unregistered managed investment scheme known as the Bluewater Trust is recorded. CPRAM accepted appointment as one of the joint managers of the trust. Its duties included identification of intended trust acquisitions, management of trust assets (including asset level strategy), budgeting, forecasting, reporting and oversight of day-to-day asset management and administration of trust assets. It was also tasked with identification of opportunities for the disposal of trust assets.

51    Alceon was registered as proprietor of the Centre by transfer on 3 April 2013 for a consideration of $41,750,000. Alceon entered into a property management agreement with Savills on 19 November 2015. By it, Savills accepted an appointment to provide each of the services in respect of the Centre as set out at schedule 2 to the agreement. The scope of services included the general administration of each of the tenancies by collecting rent, holding security deposits, ensuring compliance with tenant obligations, maintaining a tenancy schedule, maintaining tenancy files and financial management. In particular, the financial management obligation extended to the preparation of a monthly statement of monies received and expenses incurred, the issue of monthly invoices to tenants for rental payable and other charges, the collection of rent and charges and review of rental arrears. Savills also accepted an obligation to provide monthly financial management reports for the Centre. Savills operated a reporting system known as the MRI Management System (MRI) in order to comply with its financial management and reporting obligations to Alceon. Importantly, Alceon and CPRAM did not have the ability to make changes within MRI, but CPRAM could generate reports from it.

52    For the nine Food Court Tenants, leases were entered into between May 2017 and 1 November 2017 as follows:

(a)    a lease of shop T02-03 which, according to the lease terms, commenced on 1 April 2017. This lease was granted to TGS Kuber Pty Ltd trading as Dizzy Dukes Bar and Grill;

(b)    a lease of shop T04 which, according to the lease terms, commenced on 1 March 2017 granted to Kailash Corporation Pty Ltd trading as Burrito Bar;

(c)    a lease of shop T05 commencing on 1 May 2016 granted to Tushaan Enterprises Pty Limited trading as Bel Cibo;

(d)    a lease of shop T07A which, according to the lease terms, commenced on 1 April 2017 granted to Mass Nutrition Chermside Pty Ltd;

(e)    a lease of shop T07C which, according to the lease terms, commenced 1 April 2017 granted to Queensland Employment Services Pty Ltd trading as Kebab Express;

(f)    a lease of shop T28A commencing on 15 February 2015 assigned to Gorani Pty Ltd trading as Sushi Kuni pursuant to an assignment of lease with effect from 30 April 2017;

(g)    a lease of shop T29 which, according to the lease terms, commenced on 1 March 2017 granted to TGS Kuber Pty Ltd, trading as Mumbai Blues;

(h)    a lease of shop T30 which, according to the lease terms, commenced on 1 May 2017 granted to Thai Me Down Pty Ltd;

(i)    a lease of shop T32 which, according to the lease terms, commenced on 1 April 2017 granted to Ms Jie Liu trading as Redcliffe Noodle Kitchen.

53    In August 2017, Elanor engaged CBRE to undertake financial due diligence in relation to the Centre. Between 18 August 2017 and 15 September 2017, Alceon and CPRAM provided Elanor and its representatives, including CBRE, with access to the data room for that purpose. The data room was electronically maintained. Within it were contained copies of (amongst other things):

(a)    leases for the Food Court Tenants;

(b)    the Incentive deeds; and

(c)    the Tenant Arrears Reports.

54    CBRE and Elanor were each able to make inquiries regarding the tenants and the financial position of the Centre through a question-and-answer facility in the data room. The Tenant Arrears Reports did not identify any of the Food Court Tenants as being in arrears for any amount. In addition to the material contained in the data room, on 27 October 2017, Minter Ellison lawyers on Alceon’s behalf provided to Elanor’s solicitor a Tenant Arrears Report for the month of October 2017 (October Arrears Report) and a document comprising an outstanding incentive schedule as at 31 October 2017. These documents did not disclose any arrears for the Food Court Tenants.

55    I now record my findings on material facts based on the evidence. In late 2016, CPRAM recommended to Alceon that the casual dining precinct of the Centre be upgraded to create a new restaurant precinct in the expectation of securing new food tenants. This project formed a portion of a broader strategy for the Centre, designed to attract a range of new tenants. The recommendation was accepted and work commenced in late 2016. Progress was delayed. The works did not complete until late June 2017. The evidence does not permit a more precise finding. Certainly, the works were complete by the date of commencement of the last deferred tenancy commencement, which was Thai Me Down on 1 July 2017.

56    Alceon appointed the real estate firms Stonebridge Property Group and CBRE to market the Centre for sale. By no later than 2 May 2017, the Information Memorandum had been prepared for that purpose. It invited expressions of interest by 30 May 2017. The Information Memorandum was sent to Mr McNaughton by email on 2 May 2017. Seven summary points were made in the email, including “significant future mixed-use potential”, a matter that was prominently emphasised in the content of the document. The Information Memorandum references the availability of leases and associated documents in the data room. Mr McNaughton was provided with access to the data room on 10 May 2017. He commenced inspecting documents in it on 11 May 2017. There is a data room log which records who accessed the data, when, for how long and what was viewed. Documents could be downloaded and printed, either individually or in bulk. Initially, the data room comprised folders of information, indexed as follows:

(1)    Key Campaign Documents: including the Information Memorandum, trade area analysis reports and financial reports including a tenancy schedule;

(2)    Title and Transaction Documents: including draft sale contract with schedules and statutory reports;

(3)    Leases and Security: including copies of leases and lease variation documents, bank guarantees, security deposit register, disclosure statements and Incentive deeds;

(4)    Income information: including the Tenancy Arrears Reports, information concerning other income, for example licenses and signage income, monthly rental invoices for the period January to May 2017 and a detailed income & expenditure budget for the Centre for the 2018 financial year;

(5)    Outgoings information: including audited outgoings statements, budgets, rate notices, recovery letters for the 2017 and 2018 financial years and audited promotional fund statements;

(6)    Plans and Surveys: including miscellaneous contractual documents, survey plans and as built construction drawings, architectural drawings and mechanical and electrical drawings;

(7)    Building: including development approvals, certificates and a fitout guide;

(8)    Turnover: including monthly turnover data for various tenancies between March to July 2017, with separate audited turnover statements for Woolworths for the 2014, 2015 and 2016 financial years;

(9)    Insurance: including certificates of currency and claims history;

(10)    Value Add Potential: including a mixed-use development assessment report prepared by Urbis, a development approval for commercial spaces, a development approval for the casual dining precinct and a set of mixed use development schemes prepared by the architectural firm Bureau Proberts; and

(11)    Leases, Tenancy & Security: including further incentive deeds.

57    The data room log records that Mr McNaughton performed a bulk download of all of the documents in the data room on 18 May 2017 comprising 484 documents totalling 786.2 MB and another bulk download on 23 May 2017 comprising 486 documents totalling 786.3 MB. Mr McNaughton did not thereafter access the data room until 21 August 2017 when he undertook a further bulk download of 628 documents totalling 1 GB. Thereafter, on various days, he accessed the data room to view specific documents until 2 November 2017. Just what he viewed and for what purpose was the subject of considerable cross-examination which I return to when addressing the issues of misleading or deceptive conduct and reliance.

58    Elanor first submitted an expression of interest to purchase the Centre on 30 May 2017 for $54.75 million in the form of a letter signed by Mr Baliva. Expressly it assumed the annual fully leased and passing net operating income as $4,230,309 and $3,870,759 respectively “per the information provided” which is a reference to each of those figures in the Information Memorandum. It required Alceon to grant a rental income guarantee equivalent to 2 years’ gross market rent for any tenancy that was vacant as at the settlement date. It requested the grant of an exclusive dealing period of 20 business days during which Elanor would conduct due diligence to its satisfaction and negotiate in good faith to agree and execute a contract of sale. This expression of interest was stated to expire on 2 June 2017. Little evidence was given in chief as to how Elanor calculated this purchase price. Mr McNaughton mentions the submission of this expression of interest in his affidavit of 9 December 2022, but does not explain the process of calculation of the purchase price, in contrast with the particularity with which he deals with how he calculated the price in the second expression of interest that Elanor submitted.

59    In cross-examination Mr McNaughton accepted, and I find accordingly, that when the expression of interest was submitted on 30 May 2017 he knew that the Food Court Tenants in the casual dining precinct had not commenced to trade, that this area was “a work in progress” and that he made no inquiries as to whether any of the Food Court Tenants outside of the casual dining precinct had commenced to trade. He accepted that he knew at that time that Food Court Tenants in the casual dining precinct may or may not have commenced trading and may or may not fall into rental arrears. He accepted that he did not know whether any of the Food Court Tenants outside of the casual dining precinct were or were not in arrears at that time. It was then put to Mr McNaughton that, in submitting the first expression of interest, Elanor was prepared to pay $54.75 million and assume the risk that the Food Court Tenants may fall into rental arrears. Although Mr McNaughton did not accept that proposition for the reason that the offer was subject to due diligence, I find that it was the case that in calculating the price of $54.75 million, Elanor did so without interrogating the risk that one or more of the Food Court Tenants may subsequently fall into rental arrears. That finding logically flows from the sequence of events and that Mr McNaughton did not consider this question before 30 May 2017. Whether the arrears position would have been the subject of investigation, had the expression of interest been accepted, is another matter.

60    Sometime between 30 May and early August 2017, Alceon entered into a conditional contract with another prospective purchaser for a price of $57 million, which contract failed to complete, which facts are summarised in the valuation report of Mr Kwan dated 6 September 2017. Thereafter, Mr McNaughton and Mr Baliva met with Mr Gartland of Stonebridge at which time Elanor was invited to submit a further expression of interest to purchase the Centre. Either immediately following the meeting or shortly thereafter, Mr Baliva inspected the Centre with Mr Gartland, although his evidence did not describe what he observed.

61    Following his inspection of the property, Mr Baliva reviewed the Information Memorandum with Mr McNaughton. Mr McNaughton then undertook certain calculations in order to derive a purchase price for the Centre. At that time Mr McNaughton had more than five years’ experience in analysing potential investments and in determining an appropriate investment yield. He derived a yield of 7%, in part based upon yield information disclosed for comparable sales in a database that he had access to. There is a difference in those comparable sales between initial yield and core market yield. As explained by Mr McNaughton, initial yield is based on the passing rent and core market yield is based on the fully leased market rent. In those comparable sales the initial yield is within the range of 5.57% at the lower end and 8.97% at the upper end. On the assessment undertaken by Mr McNaughton, the majority of comparable sales revealed initial yields of 6.5% or less. Despite that comparable sales information, Mr McNaughton considered that the Centre should be purchased at a higher yield for a number of reasons: the reported sales for Woolworths were less than what might be expected, the Centre faced an increased risk of competition, the Woolworths lease was due to expire (subject to the exercise of any options) in 2028, the catchment area for the Centre was limited by its proximity to the coast and was relatively small in comparison with other centres and the purchase price that Alceon wanted (in excess of $50 million) was comparatively high with a corresponding increased risk of investment.

62    Having derived the yield figure, Mr McNaughton applied it to the net operating passing income. He used a figure of $3,907,170 which differs from the figure in the Information Memorandum of $3,870,759. Mr McNaughton could not recall why he used a different figure in his evidence-in-chief. What is now clear is that this is the same as the figure for total passing net operating income disclosed in a revised statement of financial figures for the Centre that was emailed to Mr McNaughton on 2 August 2017. As expressly recorded in that document the figure, indeed each of the figures contained therein, are based on a financial summary and projection as at 1 December 2017. In order to calculate the purchase price, Mr McNaughton divided $3,907,170 by 7 and then multiplied by 100 to calculate an amount of $55,816,714. From that figure he then subtracted $500,000 on account of his estimate of the expected future capital expenditure, based on 1% of the purchase price, as was his practice. Having deducted that sum, the price reduced to $55,316,714 which he then rounded down to $55.25 million.

63    Something more needs to be said about the revised financial figures that were provided on 2 August 2017. The covering email to Mr McNaughton attached an Excel spreadsheet with a series of tabs. One was labelled “Bluewater Square turnover figures” divided as between the various tenants which included information about whether a tenant had reported trading data and if so, the month of the first report. Some comments were also recorded in relation to relevant tenants.

64    The effect of that data is accurately summarised in a table contained in the closing submissions of Alceon:

65    Mr McNaughton recalled the spreadsheet when cross-examined as to its content but disputed it as a reliable record as to when those tenants commenced trading. On his evidence it is the tenancy schedule, being that tab on the Excel spreadsheet, which is the reliable source of that information. Similar turnover reports for March 2017 were available in the data room and were viewed by Mr McNaughton. Mr McNaughton gave similar evidence to that effect in answer to a number of questions put to him in cross-examination. On his evidence the turnover data is not a reliable indicator of the commencement of a tenancy because it depends upon the accuracy of the reporting of the tenant, which accuracy cannot be assumed in the case of small operators. He described these as “mum and dad operators” who sometimes prefer cash sales which are not subsequently disclosed.

66    Whilst that fact may impact on the quantum of the reported turnover, I do not find Mr McNaughton’s explanation to be satisfactory. The Food Court Tenant leases were in standard form. By cl 3.2 each tenant was obliged to “keep complete and accurate accounting records” of all transactions relating to the leased premises including data relevant to gross sales. Not later than seven days after the end of each calendar month, the tenant was obliged to give to Alceon a statement in reasonable detail of the gross sales for the previous month. By cl 3.3, Alceon had the right to inspect and have audited the tenant’s records. I find that the turnover data was a reliable indicator as to whether tenants had or had not commenced to trade because it was provided in satisfaction of a lease obligation. Logically the commencement of trading would be reflected in a monthly gross sales amount reported by each of the Food Court Tenants to Alceon. Correspondingly, the absence of a reported amount points strongly to the conclusion that a tenant had not commenced trading or at least should have invited further inquiry.

67    It is also of note that when Mr Baliva provided the revised financial figures to Mr McNaughton by email of 9 August 2017 he said: “Could you run this asset as a new syndicate at 50% LVR. Price indicated is $57.5m with 2-year income guarantee.” Mr McNaughton accepted in cross-examination that he understood that he was being requested to calculate a price of around $57.5 million in order to submit a competitive expression of interest.

68    I return to the methodology of Mr McNaughton’s calculation. He was aware that there were five vacant tenancies at the time, which he accounted for by including a condition in the letter of offer requiring Alceon to provide a rental income guarantee equivalent to two years’ gross market rent for any vacant tenancy as at the settlement date. Having completed his calculations, he discussed them with Mr Baliva. Apart from stating in his evidence-in-chief that “we reviewed” the calculations, he did not say what was done or discussed. Mr Baliva in his evidence-in-chief provides some detail of what was discussed with Mr McNaughton. In substance, Mr McNaughton advised that he had been through the Information Memorandum and had reviewed comparable sales. Based on those inquiries he had determined that a 7% investment yield was appropriate. Mr Baliva accepted that assessment and agreed with Mr McNaughton’s methodology. The result of this meeting was that Mr Baliva signed and caused to be delivered an expression of interest addressed to Mr Gartland at Stonebridge dated 16 August 2017. The letter reads:

Dear Philip,

Bluewater Square

Offer

Elanor Investors Group (ENN) is pleased to submit an Offer to acquire the below Property in accordance with the terms outlined below:

Property:    Bluewater Square Shopping Centre (Shopping Centre) Anzac Avenue, Redcliffe QLD 4020

Vendor:        Alceon Group ATF Bluewater Trust

Purchaser:        Elanor Funds Management Limited (or nominee)

Purchase Price:    $55,250,000

            (Fifty five million, two hundred and fifty thousand dollars)

Offer Assumptions:    The offer assumes:

1.    The annual Fully Leased and Passing Net Operating Income is $4,266,720 and $3,907,170 respectively per the information provided

2.    The Vendor will grant the Purchaser a rental income guarantee equivalent to two (2) years gross market rent (as assessed by the Purchaser) for any tenancies which are not subject to a lease at the date of settlement. This guarantee will be held in a trust account managed by the Purchasers solicitor

3.    Budgeted Outgoings are appropriate to operate and maintain the Property to a competitive standard and are consistent with operating cost benchmarks for similar properties

4.    Plant & Equipment has been maintained to a high standard and no material capital expenditure will be required to either replace or extend its useful life

5.    All outstanding leasing incentives, fit-out contributions, rental abatements, and other capital commitments, will remain the responsibility of the Vendor and be adjusted in the Purchaser's favour at settlement

6.    All bank guarantees and or security deposits required under the leases will be in place at Settlement and novated across to the Purchaser. There will be an adjustment in favour of the Purchaser for any outstanding bank guarantees or security deposits not provided at Settlement

Exclusivity Period:    The Vendor will grant the Purchaser an exclusive dealing period of 20 business days, during which period the Purchaser will:

1.    conduct Due Diligence to its satisfaction, with the Vendor providing full co-operation and access to the Purchaser and or its consultants; and

2.    negotiate in good faith to agree and execute contracts and other relevant agreements.

Deposit:        5% of Purchase Price at exchange of contracts.

Settlement:        30 business days following exchange of contracts, or earlier subject to the Purchaser providing 10 business days’ written notice to the Vendor.

Offer Expiry:        This Offer will expire on Friday 25 August 2017

Acceptance:        Please confirm the Vendors' acceptance of the terms outlined in this letter by signing below and returning a copy to the Purchaser

General Terms:        This Offer is not intended to and does not create legally binding or enforceable obligations between the parties.

We look forward to the vendor's acceptance and proceeding with the acquisition of the Property in accordance with the terms outlined in this Offer.

69    Alceon accepted those terms, and on 18 August 2017 the parties entered into the Heads of Agreement which relevantly provided as follows:

(1)    A purchase price of $55.25 million “as a going concern”;

(2)    The annual fully leased and passing net operating income was $4,266,720 (as at 1 December 2017) and $3,907,170 (as at 1 December 2017) respectively per the information provided.

(3)    The vendor would grant to the purchaser a rental income guarantee equivalent to two (2) years’ gross market rent (as per financials provided as at 1 December 2017) for any tenancies which are not subject to a lease at the date of settlement. This guarantee would be held in a trust account managed by the purchaser’s solicitor.

(4)    All outstanding leasing incentives, fit-out contributions, rental abatements, and other capital commitments would remain the responsibility of the vendor and be adjusted in the purchaser’s favour at settlement.

(5)    All bank guarantees and or security deposits required under the leases would be in place at settlement and novated across to the purchaser. There would be an adjustment in favour of the purchaser for any outstanding bank guarantees or security deposits not provided at settlement.

(6)    Alceon granted to Elanor an exclusive dealing period of 20 business days commencing on 21 August 2017 and expiring on Friday, 15 September 2017 during which the purchaser would:

(a)    Conduct due diligence to its satisfaction, with the vendors providing full cooperation and access to the purchaser and or its consultants; and

(b)    Negotiate in good faith to agree and execute contracts and other relevant agreements.

70    Expressly, the Heads of Agreement did not create a binding legal relationship between the parties, save as to the exclusive dealing period and a clause concerned with confidentiality.

71    Each of Mr McNaughton and Mr Baliva had access to the data room throughout the due diligence period. Although he described his role following the signing of the Heads of Agreement as limited to coordinating consultants to undertake due diligence, the data room log records that Mr McNaughton very extensively accessed documentation in the data room during the entirety of the due diligence period and thereafter until 1 November 2017, which was the date of settlement of the Sale Contract. It is notable that within the due diligence period his access included viewing documents relating to the mixed-use development potential of the site, the Urbis town planning assessment for redevelopment, including the favourable mixed use zoning pursuant to the local council planning scheme, several architectural montages of a compliant mixed-use development, the monthly turnover data for July 2017 and a tenancy arrears schedule for July 2017 (July Arrears Report) which he viewed on 28 August and 30 October 2017. Following expiry of the due diligence, Mr McNaughton did review other tenancy arrears schedules for May and June 2017, but not until 30 October 2017.

72    In mid-August 2017, Mr McNaughton spoke with Mr Hamilton with the purpose of retaining him to undertake a due diligence assessment. He requested the submission of a written proposal with a fee estimate, which he received on 21 August 2017. Amongst other matters, Mr Hamilton offered a “financial and tenancy due diligence service” which included “comparison of the net income provided by the vendor with our revised estimate of the sustainable net income”. Pursuant to the scope of works, Mr Hamilton advised that he would undertake “a critical review of all income and expenditure” to cover a number of issues including: a review of the commercial aspects of the lease agreements and audit of the tenancy schedule, the identification of any clause in the lease “that may have an impact on the income stream”, review of the trading performance of the property including the major tenants and each individual tenant, review and comment “upon the current arrears report”, the undertaking of a SWOT analysis, the identification of “‘problem’ tenants” by analysis of arrears reports and the undertaking of a check of rental and other charges due under each lease with the charges depicted on monthly invoices. CBRE offered to do all of this work for a fee of $50,000 plus GST. Mr McNaughton accepted the proposal. On 21 August 2017, he sent an email to Mr Hamilton attaching a financial pack of relevant information.

73    Mr McNaughton also contacted Mr Kwan on 21 August 2017, first by telephone and then by confirming email. He provided the financial information received from Stonebridge and the Information Memorandum and requested a valuation proposal. The email continued:

Could you kindly provide a valuation proposal.

Because we will be buying in a standalone syndicate (as opposed to ERF), we will probably be casting the net a little wider than usual on the debt sourcing, so do let me know if there are any banks who you are not on the panel of.

74    Mr McNaughton explained the acronym ERF is a reference to a listed real estate trust on the Australian Stock Exchange. Mr McNaughton received a fee proposal from Mr Kwan later that day, which he accepted.

75    The engagement of Mr Hamilton did not conclude the inquiries that Mr McNaughton undertook. The Information Memorandum referenced the existence of a report from Bureau Proberts Architects, comprising a site analysis and montages of a range of mixed-use development schemes that may be approved on the site. This report was included in the data room within a folder marked “Value Add Potential”. This report is in the form of a site analysis, its context, the extent of surrounding development and use together with an analysis of the development potential, particularly having regard to the views towards the ocean obtainable from a multilevel residential development constructed above the Centre. The report contained a number of residential options for development by reference to setbacks and heights, each being compliant with the provisions of the planning scheme. The data room log records that Mr McNaughton first viewed this report on 21 August 2017, before viewing it again on 23 and 24 August, 4 and 13 September and 13 October 2017. On the same day he also viewed another report in the same folder in the data room authored by the town planning firm Urbis. That report is in the form of a letter addressed to Alceon dated 27 April 2017. It contains a site analysis, identifies the relevant zoning and planning controls, examines the use and development requirements of the planning scheme for acceptable outcomes (i.e. not involving the exercise of the discretion to grant or to refuse approval) and provides an analysis of one of the options for development identified in the Bureau Roberts report. The conclusion is that ‘Option 3’ complied with the provisions of the planning scheme for a development of a total of 85 residential units over five levels whilst retaining the existing commercial aspects of the Centre. The maximum height of 25.5m complied with the planning scheme. In the summary to that report the author said:

The recently endorsed Moreton Bay Regional Planning Scheme 2016 offers the owner of Bluewater Square the opportunity to implement a Code Assessable mixed-use development for 85 units.

A review of the mixed-use Option 3 scheme prepared by Bureau Proberts indicates the scheme having a maximum height of 25.5m, would be subject to Code Assessment. Option 3 also meets the relevant provisions for setbacks, car parking and site cover.

76    On 23 August 2017, Mr McNaughton emailed the author of the Urbis report, Ms Sophie Lam. He stated: “I would like to have a call please to discuss, as we too believe there is good medium to long term potential to develop the site into a mixed use [sic] scheme.” On the same day, Mr McNaughton sent an email to Mr Stewart Pentland at the Moreton Bay Regional Council. Omitting formal parts, he said:

Confidentially we are in exclusive due diligence to acquire the Bluewater Square shopping centre in Redcliffe.

From the current zoning, Bluewater Square would appear to have strong medium to long term prospects to be redeveloped into a mixed-use project.

I understand that Moreton Bay Regional Council is undergoing some strategic planning when it comes to zoning and development.

Given your role as Head of Planning at Moreton Bay Regional Council, would we be able to have a phone call to learn more about how the strategic planning may effect [sic] Bluewater Square in the future.

77    Mr McNaughton received a response from Ms Amy White of the Council on 24 August 2017. Further emails were exchanged and ultimately Mr McNaughton and Mr Baliva attended a pre-lodgement meeting with Ms White on 5 September 2017, by telephone. Ms White prepared a comprehensive note of the matters discussed. It discloses that she summarised the planning scheme controls, pointed out the relevant development and use clauses relevant to the “Option 3” referred to in the Bureau Proberts and Urbis reports, highlighted the strategic development intent provisions of the zoning overlay and relevantly commented as follows:

The proposal is generally consistent with the intended role of the Seaside Village precinct as a higher order centre. In its current form the proposal reflects a mixed use, high density residential development.

Further information is required to determine how the proposed streetscape treatment ensures Sutton Street is provided as a vibrant main street for the centre’s shopping business, commercial and community uses.

78    Ms White also provided advice as to what documentation would be required in order to lodge a development application and the fees applicable. Mr McNaughton and Mr Baliva also met with Ms Lam on 25 August 2017, but what was discussed at that meeting was not explored in the evidence, save for an email that Ms Lam sent to Mr McNaughton and Mr Baliva at 5.06 pm that day, where she explained the car parking ratio requirements for short term accommodation. Mr McNaughton had further external correspondence on 25 August 2017, this time to Mr Greg Malempre at the firm Location IQ and relevantly said:

As part of your research on Bluewater Square, can you report on the number of hotels/hotel rooms/occupancy etc. on the peninsula?

If we build above the shopping centre it may make more sense to build some resi [sic] and some service apartments.

Given car park ratios this may also be what we need to do.

79    Subsequently, on 8 September 2017, Mr McNaughton received the report from Mr Malempre. It is an independent centre and market review with analysis arranged as:

(1)    review of the regional and local context of the site;

(2)    a benchmarked summary of the Centre’s composition and performance;

(3)    definition of the trade area and review of current and projected population and retail spending levels;

(4)    review of the socio-economic profile of the Centre trade area;

(5)    identification of customer segments;

(6)    review of the current and future competitive environment;

(7)    analysis of current estimated market share; and

(8)    a detailed analysis of projected sales for the Woolworths tenancy.

80    Within the report there is a section dealing with estimated sales for various tenancies, including estimates of sales for seven of the Food Court Tenants based on information provided by Elanor, where sales data was not available. In addressing the “ultimate potential assessment” the report identifies a number of key issues including: “the specialty component of the shopping centre currently includes a high proportion of independent traders which perform moderately”. A recommendation is made that Elanor should “consider greater promotion and more national brands for the food catering offer”, by reference to a number of well-known national retailers.

81    I pause at this point to observe that Mr McNaughton in his evidence-in-chief did not disclose the inquiries that he made in relation to the Bureau Proberts report, the Urbis report or his contact with the Moreton Bay Regional Council. This is surprising in light of the fact that CPRAM pleaded in its defence that if the impugned representations were made, they were immaterial in the context of the overall value of the property including the development potential of the site by reference to the Urbis and Bureau Proberts reports. Further on the question of reliance, CPRAM pleaded that Elanor was motivated to acquire the Centre because of its potential for re-development, in particular as emphasised in the Information Memorandum. I return to this point in my analysis and findings relating to the issues of misleading or deceptive conduct and reliance.

82    Resuming the sequence of material events, the July Arrears Reports was produced and printed on 25 August 2017 and was then made available in the dataroom. This, on the case of Elanor is a very significant document.

83    I reproduce it:

84    According to the data room log, Mr Hamilton viewed this report on 27 August 2017 and again on 29 August 2017, when he printed it. Mr McNaughton viewed the document on 28 August and 30 October 2017. Just what objective meaning was conveyed by this report in context is a central issue in this proceeding which I address in my analysis of the misleading conduct claim.

85    On 28 August 2017, Mr Kwan requested a copy of the Heads of Agreement and received it from Mr McNaughton. Much was made, at least initially, in the cross-examination of Mr Kwan to the effect that by receiving this information he knew the valuation figure that was required by Alceon in order to support the purchase of the Centre. However, it subsequently emerged (and I accept) that the standard form instructions from the Bank of Queensland to his firm required that he sight and have regard to any relevant sales contract, and I accept Mr Fernon’s submission that this component of the cross-examination proceeded on a false basis.

86    At some time prior to 28 August 2017, Mr McNaughton contacted Mr Stephen Schneider of the firm Colliers by way of inquiry as to whether Colliers would, in the event of the acquisition proceeding, manage the Centre for Elanor. Without being prompted, Mr Schneider visited the Centre on 28 August 2017 at 3.40 pm and provided a report by email to Mr McNaughton at 4.16 pm. Under the heading “Retailer and Performance” he observed:

At 3:40 the Centre is very quiet, would think with school pick up the Centre would be busier

Woolworths looks fresh with new fitout - not very busy

Internal common area retailers - one vacancy next to What's Hot

Donut King and lean green kitchen extremely quiet - no customers for 20 minutes

Sushi kiosk closing at 4pm

Juice kiosk closed - possible vacancy.

Level 1 commercial looks to be ok with traffic flow to that level

Good mix of food and services internally

External tenancies mainly food retailers.

All food retailers extremely quiet with a vacancy next to Thai restaurant

Restaurants not all trading - only opening for lunch and dinner

Potentially too much food - not enough traffic / customers to support the two precincts

Australia Post should be internal to pull traffic - post boxes could remain in current location.

87    Mr McNaughton accepted in cross-examination that based on this information he was aware, during the due diligence period, that the Food Court Tenants were quiet, at least on the day and at the time of the inspection and that there were insufficient customers to support the two food precincts at the Centre.

88    On 30 August 2017, Mr Hamilton and two of his colleagues Ms Brunninghausen and Ms Levene, met with Mr Shah at the Centre for the 30 August Meeting. Only Mr Hamilton gave evidence as to what was discussed, by reference to a contemporaneous file note. Mr Shah disputes Mr Hamilton’s recollection. This evidence is very controversial and forms a material component of the misleading conduct claim. I return to it in more detail later in these reasons.

89    On 7 September 2017, Mr Kwan sent an email to Mr McNaughton and Mr Baliva and attached draft calculations “based on the information provided to date for your review”. The calculations adopted an adjusted net annual income of $3,801,936 and to it applied alternative yields of 6.50%, 6.75% and 7% which, after further “below the line adjustments” respectively valued the Centre at $57,713,832, $55,547,486 and $53,535,880. In that analysis Mr Kwan adopted a value of $55.25 million. A point which that analysis demonstrates is that relatively minor alterations to the yield assumption has the effect of producing very large differences in the value of the Centre. For example, at a yield of 6.5%, the capitalised value is $58,491,329. At a yield of 6.75% the capitalised value is $56,324,984, a difference of $2,166,345 before the application of the below the line adjustments, by reason of only a 0.25% alteration to the capitalisation rate. In each case the adjustments applied by Mr Kwan are the same. Mr McNaughton responded to Mr Kwan’s draft calculations approximately one hour after receipt. He said:

Thanks Paul.

Will take a detailed look tomorrow.

On a quick pass, we’d rather the cap rate be higher and have less below the line adjustments (e.g. CapEx).

90    A few minutes later, Mr Kwan responded to the effect that he noted the comment and would “look at what rates we might be able to adjust. I’ve got a few negative reversions in there and might have another look at the outgoings.” Mr McNaughton did not wait to receive revised figures from Mr Kwan before meeting with Mr Baliva on 8 September 2017. In his evidence-in-chief, he said:

On or about 8 September 2017 I attended a meeting with Mr Baliva. We reviewed the documentation provided through the Due Diligence, including the Due Diligence Reporting documents and the Valuation Figures from Mr Kwan. From those documents together we prepared the transaction approval checklist (Approval Checklist) and the investment overview (Investment Overview). The Approval Checklist included a checklist of the due diligence for the Centre including the structure of the purchase, legal checklist as to the sale contract, fund and asset level financial forecasts, financial due diligence, valuation outcome and property management proposals. The Investment Overview included details about the Centre, its valuation, income, size and turnover. The Approval Checklist and the Investment Overview made up the report to be provided to the Board (Report).

91    A matter that attracted considerable attention during Mr McNaughton’s cross-examination is how it was that review was undertaken and the board papers prepared without the benefit of any finalised report from Mr Hamilton or Mr Kwan. I return to this topic later in these reasons. At this point I record that Mr Baliva had no independent recollection of this meeting. The board report was finalised and presented as part of an agenda with supporting documentation prior to 9 September 2017, which is the date on which the first director, Mr Moss, signed a circulating resolution to authorise the purchase of the Centre. The other directors, Mr Bedbrook and Mr Willis, signed the resolution on 10 and 11 September 2017, respectively. It is not possible to make a finding of fact as to when the fourth director, Mr Ampherlaw signed the document, but he did so in September 2017.

92    The checklist and supporting documentation provided to the board recorded, amongst other things the following:

(1)    The financial due diligence being undertaken by Mr Hamilton was a work in progress:

(2)    The demographic due diligence prepared by Location IQ was complete;

(3)    The valuation of the Centre by Mr Kwan was a work in progress, noting that “draft numbers received which support purchase price”;

(4)    The council zoning and town planning investigations were complete; and

(5)    The architectural scheme proposals prepared by Bureau Proberts were complete.

93    The board papers also attached an investment overview, prepared for the purpose of submission to prospective investors. There are portions of that document which attracted considerable attention in the course of the cross-examination of the applicant’s witnesses. Relevantly the document stated the following:

•    Acquired at a 7.7% fully leased yield (7% passing) representing a discount to prevailing market yields

…

•    Medium development potential into a mixed use scheme given favourable zoning (27 m (9 storeys) across majority of 1.356 ha site), new transport infrastructure and picturesque coastal location;

…

•    Forecast Total Return (if property were to be sold at end of year three and excluding any development potential of additional floor space given favourable planning regime):

Base IRR: 12.0% p.a

Target IRR: 14.0% p.a

…

•    The Manager will review exit/liquidity strategies within an investment horizon of approximately 3 years, subject to the Manager’s discretion.

94    Further, an entire page of the document is devoted to the development potential of the site as follows:

95    I return to the board’s circulating resolution, which assumed prominence in the cross-examination of Mr McNaughton and Mr Baliva. I set it out as follows:

Circular Resolution of Elanor Investors Limited (ACN 169 308 187) and Elanor Funds Management Limited (ACN 125 903 031) as responsible entity of Elanor Investment Fund (ARSN 169 450 926) (together “Elanor”)

96    On 11 September 2017, Mr Kwan emailed Mr McNaughton and Mr Baliva and attached “re-cut” calculations for the Centre “based on a softer cap rate after re-visiting some of the associated metrics elsewhere within our modelling.” One of the attachments comprised a capitalisation valuation commencing with an adjusted net core income of $3,855,294. To that figure, Mr Kwan applied three capitalisation rates of 6.75%, 7% and 7.25% to derive capitalised core values of $57,115,463, $55,075,625 and $53,176,466, respectively. To those figures he then undertook certain below the line adjustments to derive a market valuation of $57,182,236, $55,142,398 and $53,243,238, respectively, to which he then adopted a value of $55.250 million (based on a capitalisation rate of 7%) which, it will be recalled, was the purchase price offered by Elanor and accepted by Alceon. The calculations are marked as drafts.

97    Mr McNaughton responded to Mr Kwan by email at 1.53 pm on 11 September 2017. He said:

Looking better.

I note the rental guarantee will be approx. $360k p.a. for 2 years on the ‘below the line adjustments’ on the CapVal page it is much less?

I am also trying to get to the bottom of the sustainability of the $133k electricity profit.

You are capping it at 25%, whereas for Gladstone Square it was 20%.

98    To this Mr Kwan replied by email as follows:

Weren’t sure how the rental guarantee was going to be provided so have modelled as an off-set against our adopted assumptions. If it going to determined as a lump-sum value we can adopt this as well once the documentation has been confirmed.

The 25% cap rate on Electricity considers it being uncertain in its sustainability and hence more risky. Once you are satisfied with the current level is sustainable or otherwise, happy to adjust it down to 20%. Dependent on the amount sometimes as well.

99    On 12 September 2017, CBRE emailed a draft analysis to Mr McNaughton and Mr Baliva. The document comprised a number of summary financial tables, without analysis. Later, on 15 September 2017, CBRE provided a draft report to Mr McNaughton, which coincides with the conclusion of the due diligence period. Also, on that day Alceon and Elanor formally entered into the Option Agreement which, if exercised, required the parties to enter into the Sale Contract attached to it. The Sale Contract commenced with the standard contract for the sale of commercial land and buildings approved by the Queensland Law Society and the Real Estate Institute of Queensland together with a considerable number of additional and special conditions.

100    On 18 September 2017, CBRE finalised and delivered its due diligence report to Elanor. The report commences with a statement of the agreed scope of works and relevantly provides:

1.    Introduction

We refer to instructions issued by Elanor Investors Group to undertake due diligence investigations in connection with the proposed acquisition of Bluewater Square, a neighbourhood shopping centre located in Redcliffe, Queensland.

The agreed scope of works is as follows:

Lease agreements

A review of the commercial aspects of all lease agreements, enabling us to:

•    audit the tenancy schedule;

•    note unusual clauses in leases (e.g. exclusivity, break clause); and

•    identify clauses that may have an impact on the income stream.

Summaries of the lease agreements with the following tenants will be provided:

•    Woolworths

•    Healthworks

Retail Sales Performance

Review the trading performance of the:

•    total property;

•    major tenant; and

•    individual tenants.

Rents

Track rents from lease commencement dates to ensure that all rent reviews have been correctly implemented.

Identify rents that may not be sustainable.

Leasing incentives

Summarise incentives granted in recent leasing transactions.

Percentage Rent

Estimate the likely percentage rent based on current sales information and compare this with the estimates provided by the vendor.

Other income

Review the sustainability of sources of income other than rentals and if necessary recommend adjustments.

Recoverable outgoings

Review the outgoings budget and identify items that have potential for significant variation.

Outgoings recoveries

Check the basis upon which outgoings are recovered, having regard to the terms of the lease agreements.

Non recoverable expenses

Review allowances made by the vendor for non recoverable expenses and if necessary recommend adjustments.

After-hours costs

Check where after-hours expenses have been allocated (i.e. within the main outgoings budget or in a separate budget).

Review the process for the recovery of after-hours costs, having regard to the terms of lease agreements.

Arrears

Review and comment upon the current arrears report.

SWOT Analysis

An overview of the key strengths, weaknesses, opportunities and threats associated with the asset.

“Problem” tenants

Identify potential “problem” tenants by analysing various information sources, including:

•    arrears reports;

•    comments from tenant by tenant review with Asset Manager;

•    high occupancy cost ratios; and

•    significant declines in sales.

Security (e.g. bank guarantees)

Provide a summary comparing the security required by the lease agreements with what has actually been provided by each tenant.

Rental and other charges

Undertake a check of rental and other charges due under the lease agreements with the charges shown on monthly invoices.

Promotion fund

Summarise status of promotion fund, including committed obligations and projected balance at completion date.

101    Section 2 of the report lists the information considered including leases, the Stonebridge Financial Pack as at 1 December 2017, the July Arrears Report, and the May 2017 tenant invoices. There is no mention of any other tenancy arrears reports. Within the report it is noted that:

We have been provided with the May 2017 tenant invoices and have checked the rent, outgoings and promotion fund charges against the amounts shown on our tenancy schedule.

The invoiced amounts appear to reflect the amounts due and payable under the lease agreements.

102    Section 5 of the report is a SWOT analysis. The strengths identified include the existing lease to Woolworths, the recently upgraded external casual dining precinct and the likely primary sector trade area population growth of 1% per annum forecast to 2036. Identified weaknesses include a reference to the fact that “several tenants” have experienced sales decreases of 5% or more in the past year. Under opportunities, it is mentioned that there is: “potential for strong population growth in the immediately surrounding area if DA approved apartment developments proceed”. Under threats it is said: “the trading performance of the new external restaurant precinct is unproven and it remains to be seen if it will provide the hoped for increase in sales and customer traffic.”

103    Section 7 of the report comprises a tenancy review “based upon our review of the information provided in discussions with the Asset Manager”, which is a reference to the 30 August meeting. No issue is raised in that analysis with the performance of any of the Food Court Tenants, although they are dealt with in section 8: Review of Retail Sales Performance. The nine Food Court Tenants are mentioned with a high level of analysis by comparing occupancy costs per square metre and sales per square metre of the Centre as a whole with benchmarks published by Urbis. The result is that the occupancy costs and sales for the Centre are each lower than the benchmarks. Section 11 notes that CBRE “have been provided with an arrears report dated July 2017” which disclosed there “was a credit of $2,957.05 and there were no significant arrears dated 30 days or over”. That statement is incorrect: the report records arrears in that sum, not prepayments.

104    Section 12 of the report is concerned with tenancies at risk. Sushi Kuni is the only one of the Food Court Tenants mentioned, because of its occupancy cost ratio of 28.1%. The leasing incentives are reviewed in section 13 in detail in appendix 1 and summarised as:

105    On 21 September 2017, the Bank of Queensland instructed Mr Kwan to prepare a valuation for its purposes as mortgagee. Elanor accepted the obligation to pay for it “as standard practice” according to Mr McNaughton. The instruction required Mr Kwan to make all of his inquiries independently and to value the Centre “as is” by adoption of the capitalisation and discounted cash flow methods. Mr Kwan’s valuation is dated 6 September 2017, the instructing party is described as originally Mr McNaughton on behalf of Elanor and subsequently the Bank of Queensland. The dating of this valuation is odd as it predates the instruction from the bank, but no point was made about that in evidence or submissions. The valuation is expressed as one for first mortgage security purposes only. Mr Kwan determined the market value at $55.250 million. The report proceeds on the basis that market value is in accordance with the highest and best use of the Centre, but Mr Kwan did not ascribe any additional value as a separate item for any re-development potential of the site. The report records an instruction that Mr Kwan should assume that the two-year rental guarantee pursuant to the Sale Contract had been agreed in the sum of $650,000.

106    As might be expected, there is a comparable sales analysis. Two valuation methodologies are set out: the capitalisation of net market income and the discounted cash flow (DCF) of the Centre. On the former, Mr Kwan adopted a capitalisation rate of 7% and applied it to an estimated net income of $3,841,683 per annum, to produce a capitalised value in perpetuity of $54,881,186. He then made certain adjustments by way of additions and subtractions to derive a capitalised value of $55,312,250. On his DCF analysis, he derived a market value of $55,061.46. Having approached the valuation in that way he adopted the figure of $55,250,000.

107    On 28 September 2017, Mr McNaughton requested and received a copy of the valuation provided by Mr Kwan to the Bank of Queensland, having paid the invoice for it on 26 September 2017.

108    On or about 23 October 2017, Elanor exercised the call option and the parties then entered into the Sale Contract. During the trial, some emphasis was placed in certain special clauses in the Sale Contract. The clauses are:

(1)    The buyer acknowledges that it has not relied, and does not rely, on any representation or warranty of any nature made by or on behalf of the seller, the seller’s solicitor or the agent other than those expressly set out in this contract: cl 3(b);

(2)    The buyer acknowledges that the seller has made available and disclosed to the buyer on or before the option date all relevant due diligence material: cl 5(a);

(3)    The buyer acknowledges that subject to special condition 33, the seller makes no representation or warranty as to the accuracy or otherwise of the information contained in the due diligence material: cl 5(b)(i);

(4)    The buyer acknowledges that the seller has not conducted its own independent inquiries and investigations into information in the due diligence material prepared by third parties: cl 5(b)(ii);

(5)    The due diligence material may include statements, estimates and projections that reflect various assumptions which may or may not be correct and does not purport to contain all of the information the buyer may require: cl 5(b)(iv);

(6)    The seller does not warrant or represent that any lease will be in force on settlement or that the provisions of each lease have been complied with: cl 10.4(c) and (d);

(7)    The seller warrants to the buyer as at the option date and to the best of the seller’s knowledge, information and belief based on due inquiry, but without independent verification that the tenancy schedule is correct (as at the date of the tenancy schedule) in all material respects, the outstanding incentive schedule is correct (as at the date of the outstanding incentive schedule) in all material respects and that all questions and answers are given in good faith: cl 33.1.

109    The respondents do not contend that one or more of these clauses operates to displace liability for misleading or deceptive conduct. Rather, the clauses are emphasised as part of the entire context within which the asserted misleading and deceptive conduct is to be viewed. Elanor’s claims do not extend to breach of any of these contractual warranties by Alceon, which may be explained by cl 33.2 which is to the effect that warranty claims were required to be made in writing within 6 months after the date of settlement and the maximum liability of Elanor is capped at 1.5% of the purchase price.

110    On 27 October 2017, Alceon’s solicitor provided to Elanor’s solicitor a copy of the October Arrears Report together with an outstanding incentive schedule as at 31 October 2017. That arrears report mentions five tenants of which the only one of the Food Court Tenants is Burrito Bar. For it, an amount of $11,022.85 is shown as current – that is, outstanding for less than 30 days. The report is dated 27 October 2017 and refers to an amount of $3,000 paid as the “last payment” made by Burrito Bar on 26 October 2017. The Sale Contract settled, and Elanor became the registered proprietor of the Centre by transfer dated 1 November 2017. The evidence did not include any calculations undertaken by the solicitors to derive the final settlement figures.

111    Following settlement, a number of the Food Court Tenants either fell into arrears in the payment of rent and outgoings and vacated or abandoned their leases, in consequence of which Elanor resumed possession. The evidence of Mr McNaughton, which I accept, is:

(1)    Burrito Bar vacated its lease in January 2018, Elanor resumed possession and terminated the lease. As at 30 June 2018, $43,572.73 was outstanding;

(2)    The owner of Thai Me Down sought to surrender its lease on 30 June 2018. Elanor refused. Subsequently, Elanor terminated the lease for breach with effect from 30 June 2019;

(3)    Elanor terminated the Sushi Kuni lease for breach on 4 February 2019;

(4)    The proprietor of Bel Cibo was placed into liquidation on 12 April 2019, the liquidator disclaimed the lease and thereafter Elanor resumed possession;

(5)    Elanor terminated the Dizzy Dukes lease for breach on 26 April 2019;

(6)    Elanor terminated the Mumbai Blues lease for breach on 26 April 2019;

(7)    Kebab Express ceased to trade from its leased premises on 16 March 2020 and by May 2021 was in arrears in the amount of $230,600.34;

(8)    Redcliffe Noodle Kitchen surrendered its lease on or about 20 June 2020 owing an amount of $76,718.68 for arrears; and

(9)    Mass Nutrition surrendered its lease on 30 June 2018.

112    In the submissions of Mr Fernon, emphasis was placed on these post settlement facts as “throw[ing] light on the real value of the Centre” by reference to Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 at 291 (Brennan, Deane, Dawson, Gaudron and McHugh JJ), which distinguishes between events that arise from the inherent nature of the asset acquired and those explicable by extraneous events. An interesting question that may have arisen in this proceeding on the assessment of the damages claim is why, if that is so, Elanor did not lead any evidence as to when the vacated tenancies were leased to other tenants and upon what terms. Non-specific evidence was given by the valuer Mr Goran during the concurrent expert evidence session to the effect that when he inspected the Centre in May 2023, each of the food court tenancies was leased.

113    In his evidence-in-chief, Mr McNaughton in considerable detail undertook a retrospective analysis of the business records made available to him after settlement and prepared a reconciliation which, on his view, demonstrated that particular Food Court Tenants were in arrears at particular points in time, had or had not paid security deposits and/or received incentives beyond those disclosed in the Incentive deeds. Objection was taken to this evidence which was resolved on the agreed position that I would receive it as only relevant to Mr McNaughton’s understanding. I address the question whether Elanor has made out its case of misleading or deceptive conduct, by reference to the incorrect or incomplete nature of the documents made available to it during the due diligence and of the answers said to have been provided by Mr Shah, in my detailed consideration of the misleading or deceptive conduct claims.

The misleading conduct claims

Principles

114    I commence with a short summary of the principles which are not controversial between the parties. Whether conduct is misleading or deceptive or likely to mislead or deceive is to be determined objectively having regard to all relevant circumstances: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592 (Butcher) at [39] (Gleeson CJ, Hayne and Heydon JJ) and [108]-[109] (McHugh J). Although McHugh J dissented in the result in Butcher what his Honour said in those paragraphs is authoritative and particularly relevant to this case, which in part was:

Section 52 applies to a wide range of conduct. Confining “conduct” in s 52 to “representations” is to ignore the ordinary meaning of “conduct”…

The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. Thus, where the alleged contravention of s 52 relates primarily to a document, the effect of the document must be examined in the context of the evidence as a whole. The court is not confined to examining the document in isolation. It must have regard to all the conduct of the corporation in relation to the document including the preparation and distribution of the document and any statement, action, silence or inaction in connection with the document.

(Footnotes omitted.)

115    As a first step it is necessary to identify with precision the conduct alleged by Alceon that is said to be misleading or deceptive: Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; 249 CLR 435 (Google Inc) at [89]-[93] (Hayne J). The provision is not limited to misrepresentations, but conduct is not misleading unless in all the circumstances it induces (or is capable of inducing) error in, relevantly, Elanor and its agents. That proposition extends to conduct that has a tendency to lead Elanor into error: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 (Gibbs CJ); Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 (TPG) at [39] (French CJ, Crennan, Bell and Keane JJ); Google Inc at [92] (Hayne J).

116    In this case the conduct relied on was directed specifically to Elanor and its consultant CBRE where the distinction summarised by O’Bryan J in Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932 at [99] applies:

In assessing whether conduct is likely to mislead or deceive, the courts have distinguished between two broad categories of conduct, being conduct that is directed to the public generally or a section of the public, and conduct that is directed to an identified individual. As explained by the High Court in Campomar, the question whether conduct in the former category is likely to mislead or deceive has to be approached at a level of abstraction, where the Court must consider the likely characteristics of the persons who comprise the relevant class of persons to whom the conduct is directed and consider the likely effect of the conduct on ordinary or reasonable members of the class, disregarding reactions that might be regarded as extreme or fanciful (at [101]-[105]). In Google Inc v ACCC (2013) 249 CLR 435, French CJ and Crennan and Kiefel JJ (as her Honour then was) confirmed that, in assessing the effect of conduct on a class of persons such as consumers who may range from the gullible to the astute, the Court must consider whether the “ordinary” or “reasonable” members of that class would be misled or deceived (at [7]). In the case of conduct directed to an identified individual, it is unnecessary to approach the question at an abstract level; the Court is able to assess whether the conduct is likely to mislead or deceive in light of the objective circumstances, including the known characteristics of the individual concerned. However, in both cases, the relevant question is objective: whether the conduct has a sufficient tendency to induce error. Even in the case of an express representation to an identified individual, it is not necessary (for the purposes of establishing liability) to show that the individual was in fact misled…

117    Of course, whether Elanor was in fact led into error because of the conduct is a necessary further element to be established pursuant to s 236 of the ACL, where the inquiry does not turn on objective reasonableness: Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 517 (Heerey J) and at 521 (Sundberg J).

118    On the misleading conduct by silence case, Elanor relies on the summary of the relevant principles in Addenbrooke Pty Ltd v Duncan (No 2) [2017]) FCAFC 76; 348 ALR 1 (Addenbrooke) at [482]-[483] (Gilmour and White JJ), which Alceon accepts as applicable to this case. The summary is:

On our understanding, the principles concerning misleading or deceptive conduct by nondisclosure or silence which emerge from the authorities and which are pertinent in the present appeal may be summarised as follows:

(a)    conduct involving silence or nondisclosure may, in some circumstances, constitute misleading or deceptive conduct;

(b)    in considering whether conduct is misleading or deceptive, silence or nondisclosure is to be assessed as a circumstance like any other;

(c)    mere silence without more is unlikely to constitute misleading or deceptive conduct. However, remaining silent will constitute misleading or deceptive conduct if the circumstances are such as to give rise to a reasonable expectation that, if some relevant fact does exist, it will be disclosed;

(d)    the existence or otherwise of such a reasonable expectation is to be determined objectively;

(e)    it is not possible to categorise all of the circumstances in which a reasonable expectation of disclosure may arise. Such circumstances may exist when either the law or equity imposes a duty of disclosure, when a statement conveying a halftruth only is made (see Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97; 111 ALR 649 at [75]), when the representor has undertaken a duty to advise, when a representation with continuing effect, although correct at the time it was made, has subsequently become incorrect, and when the representor has made an implied representation;

(f)    in considering whether a party engaged in commercial dealing may have a reasonable expectation that a fact, if it exists, will be disclosed, it is to be remembered that it will often be the case that one party to a commercial dealing has more knowledge about a relevant matter than the other and yet will not, in accordance with ordinary commercial expectations, be guilty of misleading or deceptive conduct in failing to make that knowledge known to the other.

Ultimately, as indicated at the commencement of this reference to the principles, the determination of whether a failure to disclose a matter is misleading or deceptive requires an examination of all the circumstances. If in the circumstances, assessed objectively, a representee would have been entitled to expect or infer (have a reasonable expectation) that an undisclosed matter would be disclosed, that may well constitute misleading or deceptive conduct: Clifford v Vegas Enterprises Pty Ltd [2011] FCAFC 135 at [198].

119    CPRAM emphasises that in commercial negotiations between arms-length parties, silence by one party “will not be readily found” to be misleading and the statutory provision does not impose an obligation to volunteer information which may assist a counter-party: Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475 (Gleeson CJ); Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd [2010] HCA 31; 241 CLR 357 (Miller) at [22] (French CJ, Kiefel J). That Elanor was an experienced and sophisticated investor capable of making its own inquiries and assessments is relevant: Miller at [91] (Heydon, Crennan and Bell JJ).

120    Acknowledging that all relevant conduct must be considered in context, necessarily the inquiry is framed and controlled by Elanor’s remaining pleaded case. It is necessary to pay careful attention to each of the representations that Elanor relies on as establishing the conduct of the respondents which as a whole is said to have been misleading or deceptive or likely to mislead or deceive. In proceeding in this way, I am mindful that it is an error to separately examine the effect of each representation or failure to disclose, without considering the conduct as a whole: Butcher at [39] and [109]; TPG at [25]. Nonetheless to make sense of this case, I commence with the individual claims.

Was the Commencement Date Representation made?

121    This is pleaded as an express and an implied representation. Elanor contends that a representation was expressly made to it that each of the Food Court Tenant subject to the Incentive deeds had been invoiced for rent and other charges since each date of commencement listed in each of the Incentive deeds and had paid those amounts. The express representation is pleaded as written and oral. The written representation is identified as each of the leases “in respect of the rent commencement dates and rent due subject to the incentive deeds and Tenant Arrears Reports”. The oral representation is the statements made, or information not disclosed, by Mr Shah at the 30 August Meeting. It will be recalled that Elanor abandoned this claim in relation to Bel Cibo, Sushi Kuni and Mass Nutrition.

122    It is common ground that the recorded and actual commencement dates for the Food Court Tenants were:

123    What do the leases provide? As I have noted, each is in common form. By way of example, I reference the lease for Dizzy Dukes. On the cover page the term of the lease is recorded as commencing on 1 April 2017, expiring on 31 March 2024. The lease was signed for the tenant and Alceon on 9 and 29 March 2017, respectively. Item 9 of the information table contained in the schedule repeats the commencement date. The grant of lease states that the tenant has the right to use the premises and the common areas from the commencement date. The demise begins on the commencement date. Clause 2.1 obliges the tenant to pay the base rent from the commencement date by equal consecutive monthly instalments in advance payable on the first day of each month during the term. Clause 4 requires the tenant to pay an outgoings contribution for each financial year of the term by 12 equal monthly instalments in advance payable on the first day of each month. Clause 5.1 obliges the tenant to pay a promotion contribution during the term in the same manner and at the same time as the base rent. Clause 9.1 requires the tenant to give to the landlord the bank guarantee at least seven days before the commencement date. Clause 11 obliges the tenant to only use the demised premises for the purposes of the permitted use. By cl 17.1, subject to the tenant complying with the lease, the tenant may peacefully enjoy the premises during the term.

124    The incentive deed for Dizzy Dukes is undated. Recital B records that the tenant “occupies the premises as tenant under the lease”. The commencement date is 1 April 2017. Clause 2.1 specifies a fit out contribution of $270,000 which by cl 2.3 the landlord will pay to the tenant within 30 days of the last to occur of a number of events, including the commencement date or completion by the tenant of the fit out works. Clause 3 specifies a rent-free period from 1 April 2017 to 14 May 2017, during which the tenant is not required to pay any amount of base rent, the promotion levy or the outgoings contribution. Clause 4 provides for a rent abatement commencing on 15 May 2017 and ending on 14 February 2018. The rent abatement amount is $4,991.31 per month. The effect of cl 4.2 is to reduce the base rent payable in each month by the abatement amount. There is no clause in this deed which displaces the commencement date pursuant to the lease.

125    There is nothing in the lease or the incentive deed which expressly represents that Dizzy Dukes “had been invoiced for rent and other charges since the commencement date” which is the pleading relied upon by Elanor. Nor is there any representation in these documents that if Dizzy Dukes had been invoiced in that way, then it had paid those amounts since the commencement date.

126    Elanor also relies upon the Tenants Arrears Reports as making good this representation, a term defined in the pleading as each arrears report that was in the data room for the period December 2016 to July 2017. The immediate difficulty with that case is that whilst reports for that period were in the data room, it is only the July Arrears Report that was viewed by both Mr McNaughton and Mr Hamilton and his assistants. On the face of that document it does not convey any information as to when Alceon had commenced to charge any of the five tenants referenced (The Lucky Charm, Australia Post, Redcliffe Electoral Office, Commonwealth Bank of Australia or The Healthy Weigh) for any amount payable under any of those leases: more so it does not convey any information about the date of invoicing and the payment of amounts due by any other tenant, in particular the nine Food Court Tenants in issue.

127    The implied representation is framed as “aris[ing] from the circumstances in which ‘such documents’” (which is a reference to the leases, the incentive deeds and the Tenant Arrears Reports) “were provided in the absence of any other document or information to advise the commencement dates had not been deferred”. That implication is not made out. The June and July 2017 monthly turnover reports were in the data room. In cross-examination, Mr McNaughton accepted that on 28 August 2017 he viewed the monthly turnover data for July 2017, although his focus was upon the reported sales data for Woolworths. He also received the updated financial information from Stonebridge on 2 August 2017. The documents disclose that Burrito Bar did not report sales until May 2017, Dizzy Dukes and Mumbai Blues did not report sales until June 2017 and Mass Nutrition, Kebab Express and Redcliffe Noodle Kitchen did not report any sales until July 2017. Additionally, in the comments column to the updated financial information under the tab “monthly turnover”, there are notes that:

    Dizzy Dukes as at June 2017 had only reported 14 days of actual trading;

    Burrito Bar had commenced to trade in May 2017, having suffered disruption caused by the fitting out of the Dizzy Dukes tenancy; and

    Mumbai Blues had reported only 12 days of actual trading in June 2017.

128    When cross-examined about these documents, Mr McNaughton maintained that reliance should only be placed on the lease commencement date as modified pursuant to the incentive deeds in order to determine the actual commencement date of trading for each tenancy. Necessarily, that subjective opinion of Mr McNaughton is not relevant in determining whether Elanor was objectively misled by implication. It is also the case that the monthly turnover data is other information that was made available to Elanor relevant to the commencement date of each tenancy, contrary to the pleading of the implication.

129    Mr Hamilton’s evidence was to the effect that when he undertook his due diligence, he was aware that tenants would only report sales data “when they start occupation” by which he accepted he meant when a tenant begins to trade. He was aware that “there could be any number of reasons” which may delay the commencement of trading of a tenant in a shopping centre. He was aware that the casual dining precinct was newly established, and he accepted that it is common for tenants to be delayed in securing access because of building work, including fit out work undertaken by other tenants.

130    The Location IQ report that Mr McNaughton received on 8 September 2017, in the analysis of the Centre composition and performance to 30 June 2017, noted that sales had been estimated for Thai Me Down, Dizzy Dukes, Redcliffe Noodle Kitchen, Mass Nutrition, Kebab Express, Burrito Bar and Mumbai Blues, as none of these tenants had reported sales in the relevant period. Mr McNaughton accepted in cross-examination that these estimates were contained within the information provided by Elanor to Location IQ. Mr McNaughton accepted that there were at least two reasons why these tenants may not have reported sales: either they had not commenced trading or had only recently done so. To that he added a third, that tenants had failed to report sales. The difficulty with that evidence is that a failure to report sales is a breach of each lease, which ought objectively to have excited inquiry by Elanor as to why the sales had not been reported and if there were no reported sales to 30 June 2017 by these tenants, then objectively it is evidence that trading had not commenced, despite the rent commencement dates in each lease as relevantly modified by an incentive deed.

131    The Information Memorandum expressly disclosed to Elanor from the outset that, as at 2 May 2017, the upgrade to the casual dining precinct was a work in progress, expected to be completed in May 2017, with Food Court Tenants “expected to begin trading by the end of June 2017.” When that is read with the monthly sales data for June and July 2017, the absence of reported sales for a number of the Food Court Tenants is objectively inconsistent with the implication that Elanor frames. Further the rent commencement dates (adjusted in accordance with the incentive deeds) for Dizzy Dukes (15 May), Burrito Bar (14 April), Kebab Express (1 May), Mumbai Blues (15 April), Thai Me Down (15 June) and Redcliffe Noodle Kitchen (15 May) each pre-date the expected trading commencement date in the Information Memorandum, which raises a further difficulty to acceptance of Elanor’s case that the Commencement Date Representation was objectively misleading.

132    These are not the only difficulties that Elanor faces. Mr Hamilton accepted in evidence that it was common for landlords to agree to a deferral of the date for charging rent until the actual commencement of trading, despite the obligation to pay rent as expressed in a lease. The data room included a folder of monthly rental invoices for the period January-May 2017. There were no tax invoices for Dizzy Dukes, Kebab Express, Mumbai Blues or Redcliffe Noodle Kitchen for May 2017. Mr McNaughton could not recall whether he looked at the tax invoices and accepted that he could have requested the provision of more up-to-date tax invoices but did not do so. Objectively, the absence of tax invoices for rental is probative that trading had not commenced.

133    It did not matter to Elanor that the rent commencement dates may have been deferred beyond the dates specified in the leases and the incentive deeds, as Alceon is the party that suffered a loss in rent to the settlement date. Further, the deferred rent commencement dates the subject of Elanor’s complaint affected six of the nine Food Court Tenants and where the periods varied between two and six weeks. Pursuant to the Sale Contract, the cost of any further extended incentives beyond the settlement date was required to be adjusted in Elanor’s favour. In the context of the acquisition of the Centre comprising, it will be recalled, a Woolworths supermarket as the anchor tenant, two mini-majors, 28 specialty shops, and eight commercial tenancies, these deferrals were objectively immaterial.

134    The commencement date oral representation case turns on the discussion between Mr Shah, Mr Hamilton and his two assistants at the 30 August Meeting. At trial I required viva voce evidence to be adduced in relation to materially disputed conversations and events and to that extent the narrative contained in the affidavits made by the witnesses was not received. Elanor’s pleading of the oral representations of Mr Shah is:

On 30 August 2017:

(a)    Alexander Hamilton asked Frenil Shah about the trading and rental performance of each of the tenants of the Property; and

(b)    in response Mr Shah did not identify any of the tenants of the Food Outlet as:

(i)     having outstanding arrears;

(ii)     receiving any abatements or incentives beyond those disclosed in the    Incentive deeds; or

(iii)     having any issue in respect of their respective sales, their ability to pay rent or to satisfy their other obligations under their respective leases.

135    In his evidence-in-chief, Mr Hamilton commenced with acknowledging his obvious difficulty in recalling the words used and the content of the discussion that occurred six years earlier. He said that the meeting took place in a coffee shop at the Centre, which he regarded as unusual as such meetings for reasons of confidentiality ordinarily take place in an office. After introductions, his evidence continued:

Yes?---So essentially, I would have said that – thank you for your time – for meeting with us. We’ve had about a week to go through the data room, and there’s a lot of information in there that we’ve already obtained. We’re not here to go over information that’s already in the data room. We’re trying to get some background to the numbers and the documents and, you know, anecdotal evidence of what’s going on in the shopping centre.

Yes?---And in order to do that, we would like to go through tenant by tenant and ask for your feedback on anything that you can – you know, that may be out of the ordinary or of interest, and I’ve given a few examples in the affidavit which – I haven’t got the right page in front of me but - - -

HIS HONOUR: No, no, no. I don’t want you looking at the affidavit. I want to just hear it in your own words?---Yes. So essentially, things like how are the tenants trading, do they have a history of arrears, do they need more or less space, are they likely to renew their lease when their lease expiry comes round – those are the sort of questions, and the idea is to give a few pointers of the sort of things we’re interested in, but what would normally happen is that that would draw out any other discussion points or points of interest. So - - -

MR FERNON: And you identified a number of matters, including are there any – I think you meant are there any arrears – are there any matters – do you recall, in answer to those questions, that you put what, if anything, Mr Shah said in respect of – now, when I say the Food Court Tenants, do you – there’s nine tenants that have been the subject of your report. Do you know what I’m talking about?---Yes. Yes.

Do you recall what it was that Mr Shah replied to you when you went through each of those tenants, as you say, in respect of the Food Court Tenants on those matters?---Well, I – we had one of my colleagues taking notes. There were no notes. My recollection is there was no information given unless it’s noted in that document of the record of the meeting.

When you say, “no information given” - - -?---Well, there might have been no issues would be a typical response.

Is it in response to the questions that you asked?---Yes.

136    Mr Hamilton was then taken to a contemporaneous typed file note, prepared by an assistant of Mr Hamilton who was present at the meeting, which he confirmed accorded with his recollection of the matters discussed. The document was obviously pre-prepared, by the adoption of a number of headings corresponding to the various tenancies. Below each heading, in some cases, there is a note which, on the case of Elanor, records a relevant response by Mr Shah to a related question. Thus, in commencing with Woolworths, there is a note that:

Sales are down due to other Woolworths opening nearby – an old Woolworths that was upgraded.

Never paid percentage rent – so rent unlikely to change at rent review in 2018.

137    There is no relevant response recorded for any of the Food Court Tenants. That concluded the evidence-in-chief from Mr Hamilton on this point. Neither of his assistants were called to give evidence. There is, however, the content of Mr Hamilton’s due diligence report which I accept is a contemporaneous record. The report notes that Mr Hamilton met with “the asset manager” and in the section dealing with average sales per square metre, there is a note that:

The Asset Manager was unable to give any specific reasons for the declines in sales, but should this trend continue there is a greater likelihood that these businesses will start to incur arrears or seek rent abatements.

138    That comment did not relate to the Food Court Tenants. In that part of the report dealing with the tenancy review, there is a reproduction of the information contained in the file note. There is no reference to anything that Mr Shah said about Food Court Tenants and there is no further mention in the document of any other information provided directly by Mr Shah at the meeting. Of course, this is not to overlook Elanor’s submission that the absence of any adverse reference in consequence of the meeting with Mr Shah, is logically probative of the fact that Mr Shah did not disclose matters of that character.

139    Mr Hamilton was extensively cross-examined as to his recollection of the meeting. He accepted that although the turnover data and arrears reports for each of the Food Court Tenants between December 2016 and July 2017 was in the data room, he only looked at the July Arrears Report. He accepted that he knew by reference to the July 2017 turnover data that six out of 14 tenants in the food sales category had reported sales of three months or less to 31 July 2017. He was also aware that the turnover data which he examined was based on a projection to 1 December 2017. This evidence of Mr Hamilton provides context to his evidence-in-chief that his purpose in meeting Mr Shah was “to get some background to the numbers…anecdotal evidence of what’s going on…” understood by reference to the limited data that he had examined.

140    Mr Hamilton explained that he did not ask separate questions of Mr Shah relevant to trading performance for each tenant because he had that information from the reviewed documents and that is what he relied on. He would ask a generic question, designed to elicit anything extra from Mr Shah. He further accepted that when he asked questions concerning tenant arrears, he was seeking information as to the current position, not historic arrears, although later in his evidence he appeared to contradict this answer by insisting that he was interested in receiving information about historical arrears. He then qualified the answer in response to a question from me as to whether he was interested in historical arrears stating:

…No. If there were historical arrears. That if they’re very new tenants and they hadn’t started paying rent, there wouldn’t be any historical arrears. There wouldn’t be any arrears.

141    Mr Hamilton also denied the direct proposition that he did not ask Mr Shah whether there were any issues in respect of each tenant.

142    Mr Shah also gave viva voce evidence as to what was discussed at the 30 August meeting. He said the meeting lasted for between 60 and 90 minutes. He said there was discussion about vacancies in the Centre: approximately three shops, a kiosk, an office suite and an ATM. He said that Mr Hamilton asked questions about each of these vacancies and whether anyone had expressed interest in taking them up. He was asked questions about the connection of water and gas to the tenancies. Following this there was a discussion in relation to outgoings, in particular the expenses of running the Centre. He accepted that Mr Hamilton phrased his questions by reading from notes. He said the discussion ranged across questions relating to other income generated by the Centre, such as for signage and storage. He said that he was asked “a whole bunch of questions” relating to other types of income. Mr Hamilton was asking questions about discrepancies between the tenancy schedule in the data room, the lease documents and the actual commencement date of the leases of particular shops. He was asked about expiry dates of leases and rent review dates. Some of the questions he could not answer because he did not have the information to hand, however, Mr Hamilton could put relevant questions in a formal way through the data room. A notable aspect of Mr Shah’s evidence is that he did not purport to give evidence as to the actual words used either by Mr Hamilton or by himself during the meeting, which doubtless is understandable by reason of the effluxion of time.

143    In cross-examination he accepted the importance of historical arrears reports to a purchaser in assessing the relative risk of the Centre, but at least initially he only provided arrears reports from March and April 2017 in the data room. Those reports were supplemented following a specific request that was made by a prospective purchaser. He gave unsatisfactory evidence in my view that he did not wish to “speculate” as to why a purchaser would require additional arrears reports, despite accepting that they would provide more information. He claimed not to have ever examined the arrears reports that were placed in the data room. He said that he was not “curious” about their content. When pressed as to whether he was concerned to ensure that material made available in the data room was not misleading, he initially answered that he could not confirm what material he had examined but then said that he did not review “each and every document” that was provided.

144    Turning to the specifics of the 30 August Meeting, he denied that Mr Hamilton at the outset stated that he intended to ask a series of questions in relation to each of the tenants. He denied that he was asked to comment on the trading performance of the tenants. He denied that he was asked about whether there was a history of tenant arrears. He denied that he was asked about whether tenants were likely to renew leases. He denied being asked questions in relation to each of the tenants listed in the file note of Mr Hamilton. Upon being taken to the file note, he said that he had made his own notes of the meeting but no longer had them. There is no reference in his affidavit evidence-in-chief to the fact of preparing any notes. He said that they existed in the form of a notebook that he had “probably” disposed of within two or three months of the meeting. He accepted that despite the absence of notes and the effluxion of time, nonetheless he had a detailed recollection from recall, not reconstruction, of the matters discussed.

145    He maintained that Mr Hamilton did not ask him direct questions in relation to the trading performance of each of the Food Court Tenants and responded that if he had done so, he would have referred Mr Hamilton to the material in the data room. The extent of Mr Shah’s recall of what was discussed at this meeting is highlighted by evidence that he gave in relation to a question about the floor area of a particular tenancy. Mr Shah stated that he had been asked to comment on the discrepancy between a survey plan area of 25m² and a statement on the tenancy schedule that the area was 27m². Objectively, this evidences an extraordinary ability on the part of Mr Shah to recall evidence about a discussion that occurred in August 2017 in minute detail and without the assistance of any contemporaneous note. This causes me to doubt his reliability.

146    I have no hesitation in accepting Mr Hamilton as an objective witness of the truth who gave reliable evidence to the best of his recollection as to what was discussed at the 30 August Meeting with Mr Shah. From observation, Mr Hamilton was a careful and measured witness who Alceon accepts “was plainly a witness of the truth” and suffered from no partiality in the proceeding. In contrast, Mr Shah was an unimpressive witness who was not forthcoming in his evidence. I find that his evidence was not reliable where it conflicts with that of Mr Hamilton and with contemporaneous documents. On many occasions he avoided giving simple answers to direct questions, often requesting simply expressed questions be repeated. His evidence that he never looked at the monthly tenancy arrears reports, despite being included on the emails from Ms Coco which attached them, strains credulity: Mr Shah was the individual from CPRAM who had the primary responsibility for portfolio management of the Centre and with it performance of the agreement between Alceon and CPRAM. He also denied discussing the content of those monthly reports with Ms Coco, despite her evidence, which I accept, that she did so.

147    Mr Shah also gave unimpressive and incredulous evidence about an amount of $13,750 credited to the account of Dizzy Dukes on 20 April 2017, described as an unapplied receipt on the Tenant Arrears Report for May 2017. Mathematically, by reference to other business records, this sum represented a part payment of the security deposit of $41,250. The balance of $27,500 was paid on 20 April 2017. Despite being faced with this compelling evidence, Mr Shah insisted that the tenant had simply paid rent in advance – a proposition that sits uncomfortably with the fact that the incentive deed deferred the rent commencement date to 15 May 2017 and there were further deferrals, caused by the upgrading work, to 1 June 2017. Mr Shah’s evidence that $13,750 was a pre-payment of rent cannot be accepted in the light of the contemporaneous business records.

148    Overall, and by careful observation of the evidence of Mr Shah given over some hours, I formed the negative impression that he was unwilling to give evidence that he perceived contrary to the interests of the respondents.

149    I am of course mindful of the well-known observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 as to the fallibility of memory over time and the degree of precision required to prove that what was said was contextually misleading or deceptive in this case. It must be said that the evidence of Mr Hamilton lacked specificity but is corroborated by the fact that no adverse observation in relation to the Food Court Tenants is recorded in the note of the meeting or mentioned in his due diligence report. Accordingly, I find that Mr Hamilton asked questions of Mr Shah designed to elicit background information as to the operation of the Centre that was not apparent from the documentation disclosed in the data room. He commenced by asking a series of general questions relating to whether a tenant was trading, was there a history of arrears, whether more or less space was required and whether it was likely that a tenant would renew a lease. For the Food Court Tenants he did not receive any negative information, or at least information sufficiently material to be recorded in the notes of the meeting and included in his due diligence report. To this extent I find that Mr Shah did not identify any single Food Court Tenant as having outstanding rental arrears as at 30 August 2017 and this element of the applicant’s pleading is made out. However, the evidence is not sufficient to enable me to find that Mr Shah did not identify any Food Court Tenant in receipt of abatements or incentives beyond those discussed in the Incentive deeds or having any other generalised “issue” in relation to sales, the ability to pay rent or the ability to satisfy obligations under their respective leases. The generalised nature of that pleading extends much further than the evidence of Mr Hamilton.

150    My finding on that specific issue does not of itself establish this aspect of the misleading conduct claim as the failure by Mr Shah to identify any of the Food Court Tenants as having outstanding rental arrears as at 30 August 2017, cannot be viewed divorced from the entirety of the conduct between Elanor, Alceon and CPRAM between May 2017 when the first expression of interest was submitted and 9 September 2017 when the director’s circulating resolution to acquire the Centre was first signed. It is also necessary that Elanor proves that there were outstanding amounts owing by Food Court Tenants as at 30 August 2017, which I address separately. It is necessary to pay particular regard to the remaining pleaded representations, the other information that was available to Elanor and what was taken into account by it as material to its decision-making commencing with the second expression of interest on 16 August 2017. These matters are necessarily intertwined with my consideration of the Arrears Representations, the Rental Return Representation, the failure to disclose case and whether Elanor has established that the Conduct was, to adopt the language of its case, incorrect, understated or contained material omissions.

151    However, the evidence of Mr Hamilton does not support a finding that the Commencement Date Representation is made out as it is limited to the finding at [147] that none of the Food Court Tenants were in arrears of rent as at 30 August 2017. On the evidence, Elanor has not established that Mr Shah represented to Mr Hamilton that the Food Court Tenants had been invoiced for rent or other charges since the commencement date recorded in each lease and incentive deed and had paid those amounts.

152    Accordingly, the Commencement Date Representation as pleaded is not made out.

Were the Arrears Representations made?

153    The focus of this claim is upon the Tenant Arrears Reports which, it will be recalled, is a reference to the reports for the period December 2016 to July 2017 in the data room and the October Arrears Report that was provided to Elanor’s solicitor on 27 October 2017. The conduct alleged is a rolled-up plea. It is useful to break it into the constituent elements. Thus, these reports:

(1)    “were correct and complete” in recording all amounts not paid by the Food Court Tenants “in the corresponding month” of each report for all prior rendered invoices; and

(2)    “all amounts” in rendered invoices in the months prior to the month of the report had otherwise been paid in full.

154    As I have observed, by the time of closing submissions, Elanor conceded that this claim cannot succeed for Kebab Express, Thai Me Down and Mass Nutrition. Elanor accepts that there were no arrears for these tenants, which leaves six tenants to be considered. Another matter that may be dealt with at the outset is that the claim framed by reference to the October Arrears Report cannot succeed because that report was provided shortly prior to settlement of the Sale Contract and could not have led Elanor into any anterior error inducing any of its decisions to acquire the Centre. Although Elanor conjunctively pleaded that in reliance on the conduct it entered the Option Agreement, exercised the call option and completed the Sale Contract, no evidence was led as to what recommendation would have been put to the board between 15 September 2017, when the Option Agreement was entered into, and 1 November 2017, when settlement of the Sale Contract occurred, relating to options to withdraw from the transaction. Nor was evidence adduced as to what steps would have been taken, including after the call option was exercised on 23 October 2017, about the likely risks that Elanor may have faced in seeking to withdraw, including litigation that it may have then faced. The only evidence from Mr McNaughton was to the effect that he would have recalculated the purchase price before the second expression of interest, resulting in a lower figure, and in that event the transaction would not have proceeded. Just what decision the board may have made in any number of hypotheticals following entry into the Heads of Agreement on 18 August 2017 was not addressed: cf Jadwan Pty Ltd v Rae and Partners (a firm) [2020] FCAFC 62; 278 FCR 1 at [487]-[530] (Bromwich, O’Callaghan and Wheelahan JJ).

155    Similarly with the Commencement Date Representation, Elanor pleads that this conduct was express made in writing, was implied and was oral. The express representations are framed as “contained in the Tenant Arrears Reports…”. According to the data room log, Mr McNaughton downloaded bulk documents from the data room on 18 and 23 May and 21 August 2017. Specifically, he viewed the July Tenant Arrears Report on 28 August and 30 October 2017. He viewed the monthly turnover data for July 2017 on 28 August and 19 and 20 September 2017. In his evidence-in-chief, Mr McNaughton said that he reviewed the documents that he downloaded in bulk on 31 October 2017 including the Tenant Arrears Reports between December 2016 and June 2017. Later he reviewed the July Arrears Report, having received an email alert to the effect that it had been uploaded to the data room, on 26 August 2017. He was not cross-examined on this evidence.

156    However, from the outset the data room only included Tenant Arrears Reports for March and April 2017. On or about 21 June 2017, additional reports were printed and uploaded to the data room for December 2016 and January, February, and May 2017. A further report for June 2017 was printed on 25 July 2017 and then placed in the data room. The March, April and June 2017 arrears reports did not identify any of the Food Court Tenants as being in arrears, indeed none of the Food Court Tenants are listed. It is not necessary to interrogate the content of the December 2016, January, February, and May 2017 reports as Elanor accepts that these reports record the arrears position as at the date of printing, and not as at the close of each month and therefore “provide no additional arrears information” in relation to those months. If there had been arrears, then on the case of Elanor that fact ought to have been disclosed in the March, April and June 2017 reports.

157    The data room activity reports disclose that Mr Hamilton, and his assistants, only examined the July Arrears Report, which fact Mr Hamilton conceded in cross-examination despite what he had said in his affidavit evidence-in-chief.

158    On its face the July Arrears Report does not disclose arrears by any of the Food Court Tenants. There can be put to one side, Kebab Express, Thai Me Down and Mass Nutrition which as Elanor now concedes were not in arrears. The question is whether by omission (assuming for the moment that other Food Court Tenants were in arrears) the July Arrears Report conveyed that it was a correct and complete statement of all amounts which had not been paid by the six remaining Food Court Tenants from all previously rendered invoices or, as the alternative case is put, that “otherwise” the six Food Court Tenants had paid in full all amounts due as invoiced prior to July 2017. Elanor’s submission is the July Arrears Report reflected the position for each of the tenants as at 31 July 2017. Despite the anomaly between the print date of the report (25 August 2017) and the period to which it relates (July 2017) Elanor submits that it should not be construed as representing the arrears position as at the print date as the July Arrears Report is an important document likely to be viewed by a prospective purchaser in undertaking the due diligence to purchase a shopping centre where there are multiple tenancies. Elanor accepts that if a person makes assumptions about information that is disclosed, or representations made “that are not reasonable” then “there may not be a sufficient causal connection between the conduct and the error on the part of the recipient”: TPG Internet at [39]. Elanor submits:

A document can be textually accurate but contextually misleading or deceptive. So much is obvious if one considers the facts of this case, where the arrears reports provided are said to reflect the position at the date of printing, when the heading of the document, the allocation of arrears to current, 30 days, 60 days etc and the circumstances in which the documents are provided, being to disclose historical arrears, suggest that they report arrears at the close of the relevant month to which the report relates. In such circumstances, it is not a defence to a claim that such reports were misleading or likely to mislead for the Respondents to say that the document was an accurate or true statement of arrears. The document in this example may be textually correct, but contextually misleading. That is why conduct needs to be judged in all the circumstances.

159    The respondents agree that the conduct relied upon must be considered in all the circumstances: indeed that proposition is central to their respective cases. Alceon emphasises the following matters. First, the report records a last payment date for each tenant which varies between 7 and 21 August 2017. In each case the amount of the last payment and the date of payment is recorded. When this is considered with the date of 25 August 2017 at 16.21, that is recorded on the bottom of each page the “obvious inference” is that the report set out the arrears position as at the date and time that it was generated. Thus, so the submission runs, Elanor misunderstood the meaning of the report. In any event, Alceon submits that Elanor has failed to prove that there were arrears for the other six Food Court Tenants as at 31 July 2017.

160    CPRAM, similarly to the submissions made by Alceon, submits that the arrears report “provided point-in-time information” sourced from MRI as to the arrears position for a particular tenant. If amounts were outstanding, but had been paid late (i.e. before the time of generation of the report), that fact was not recorded. The fact that the report records last payments which post date the month of the report: “clearly begs the question, how could the reports then be purporting to show point-in-time information for the last day of the month in question?”.

161    In my view the July Arrears Report was ambiguous. If the report purports to be a record of all arrears to 31 July 2017, then what is the point of recording a last payment date and an amount thereafter? Further, what is the point of the date of 25 August 2017 and the time of printing, if objectively the document is a “correct and complete” statement of all amounts “which had not been paid” by any of the Food Court Tenants for amounts previously invoiced?

162    The July Arrears Report is not a document that was authored by Alceon or CPRAM. It is an agreed fact that neither Alceon nor CPRAM had the ability to make changes within MRI, but CPRAM had the ability to generate reports from it. For the July Arrears Report, each page has the Savills logo, the mark “Head Office” and the notation “produced by smart (Savills Management Accounting & Reporting Tools)” together with the copyright symbol asserting ownership by Savills. Although the respondents do not seek to make out a case to the effect that either simply passed on information prepared by a third person and without representing the truth or accuracy of that information, a component of the entire circumstances of this case concerns Elanor’s knowledge as to the provenance of this information and its accuracy. Mr McNaughton in his second affidavit of evidence-in-chief explains that he did not seek an accounting audit of “the financial material” because it was prepared on the basis that Savills were managing the property and used their own financial and management reporting systems. According to Mr McNaughton: “Savills is a globally recognised and reliable property management company. Its existence in managing the Centre was a form of primary audit that I considered Elanor could rely upon.” His evidence then continued:

…[I]n my experience, when documents, reports or ledgers for instance are generated by property management software system of a globally renowned company such as Savills, it is assumed that those documents, reports or ledgers are reconciled and cross-checked with other relevant documents, reports or ledgers in that system. Accordingly, in my experience it is reasonable to take those documents, reports or ledgers at ‘face-value’ and not take steps verify [sic] the source documents that those documents, reports or ledgers were based upon.

163    In cross-examination, Mr McNaughton was taken in detail to various sub-clauses contained in the special conditions of the Sale Contract at cl 5, which I have mentioned above. His attention was directed to the buyer acknowledgement to the effect that the seller “makes no representation or warranty as to the accuracy or otherwise” of the due diligence material, that the seller has not conducted its “own independent inquiries and investigations into information in the due diligence material prepared by third parties” and that the buyer warrants that it has “examined and satisfied itself” in relation to all matters contained in the due diligence material. It was then directly put to Mr McNaughton that Elanor accepted the risk as to whether or not the information prepared by Savills was reliable or alternatively accurate to which he answered:

…. We accepted the risk. No. We were working on the assumption that it was accurate.

That’s right. So if it wasn’t, you are accepting the risk that it wasn’t? --- I guess so. Yes.

…

Mr McNaughton, Elanor could have, if it chose to do so, could have undertaken a due diligence of the accuracy of the financial information or material that Savills had regarding the Centre? --- If time, cost and industry practice permitted, then – yes.

But you didn’t even turn your mind to that, did you? --- No.

164    Mr Hamilton also gave evidence to the effect that he relied upon the accuracy of the Savills documentation and assumed the risk that the information might not be accurate.

165    Two points flow from this evidence. One, the objective meaning of the two page July Arrears Report, which I have concluded was ambiguous on its face, must be considered in the context that it was a component of a large amount of information that was made available to Elanor during the due diligence period as contained in the data room. Within that documentation, there was available to Elanor monthly rental tax invoices for the period January until May 2017, tenant recovery letters for the financial year 2017, outgoings recovery records for the financial year 2018 and the monthly turnover data for the period March to July 2017. Elanor did not examine the detail of this documentation and made no attempt to reconcile amounts charged with amounts paid. The Savills records included detailed monthly reconciliations of amounts charged to and paid by each tenant and, although these documents were not made available in the data room, no request was made by Elanor or Mr Hamilton for the provision of this type of information. Moreover, through the question-and-answer facility in the data room, Elanor could have asked a simple question to the effect: Is the July Arrears Report a correct and complete statement of all rental arrears for each tenancy to 31 July 2017? Similarly, through that facility, Elanor could have sought clarification as to the difference between the print date and the last payment date on the July Arrears Report and the period to which it relates.

166    The other is that there is considerably more evidence to the effect that Elanor was not lead into error by the July Arrears Report because it took the risk that one or more, or indeed all, of the Food Court Tenants may be in arrears and may not ultimately be complying with their payment obligations pursuant to the leases or whether the Food Court Tenants were in arrears was immaterial to its decision-making. What must be considered in this case is the knowledge and characteristics of Elanor “so far as it relates to the content and circumstances of the conduct”: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [26] (French CJ). I return to this point, following my analysis of each of the claims of Elanor as pertinent to the entire context of the conduct alleged.

167    The second Arrears Representation is pleaded as an implication: the circumstances in which the Tenant Arrears Reports were provided and the absence of any other document of a similar nature for different periods or tenants. This pleading is difficult to understand and was not elaborated upon in Elanor’s closing submissions. It does not add to the express representation said to be conveyed by the arrears reports and self-evidently the implication cannot be inconsistent with the objective meaning of those reports. In my view the implied representation contention takes Elanor’s case no further than the express representation case.

168    Thirdly, there is the oral representation claim that is founded on what Mr Shah said and did not say during the 30 August Meeting. As I have found, Mr Shah did not identify any of the Food Courts Tenant as having arrears of more than 30 days during that meeting, but it does not follow from that finding that his conduct was, in all of the circumstances, misleading or deceptive or likely to mislead or deceive, which point I return to later in these reasons.

Was the Rental Return Representation made?

169    The pleading is that the rent that Elanor “should expect to receive from tenants” was in accordance with the Passing Base Rent Representation and/or the Rent Representation. This is particularised as implied, arising from each of those representations and the content of each other pleaded representation, to the extent now maintained. Despite the abandonment of these two representation claims, these terms must be understood as having the respective meanings in cl 33.1 of the special conditions to the Sale Contract and the attached tenancy schedule (passing base rent representation) and cll 16.13 and 33.1 when read with the outstanding incentive schedule which is schedule 4 to the Sale Contract. I emphasise that these two representations claims as pleaded are confined by these clauses in the Sale Contract and do not have a more general meaning. They are not to be confused with the net operating income (fully leased) or the net operating income (passing) as referred to in the Information Memorandum stated as at 30 June 2017.

170    Dealing first with the passing base rate representation, the lease schedule attached to the Sale Contract is dated as at 15 September 2017. It lists each tenant of the Centre by name and shop reference. It has columns for the commencement date, the expiry date and any options applicable to the leases. The final column is marked “passing base rent $ pa” and then follows an annual amount for each tenant. Alceon accepts that it provided the contractual warranty by reference to the tenancy schedule, including that it represented that the tenancy schedule was correct in all material respects. However, the problem for Elanor, which is also emphasised by CPRAM, is that it has not adduced evidence that the passing base rent payable as at 15 September 2017 differed from the amounts shown in the tenancy schedule. I accept that submission, together with the additional point that is made for CPRAM that the rental abatements or credits that were applied to one or more of the Food Court Tenants are simply irrelevant to the calculation of the annual passing base rent as at 15 September 2017. For these reasons, this representation was not misleading or deceptive.

171    For the same reason, the Rent Representation claim is not made out as it is also a reference to cl 33.1 of the Sale Contract and the tenancy schedule which records the total amount of rent payable by each tenant as at 15 September 2017. No representation is made about the amount of rent actually payable between May 2017 and 1 November 2017.

Did the respondents engage in misleading conduct by non-disclosure?

172    Careful attention is required to the way in which this claim is pleaded as the form and content of the pleading make comprehension difficult. The first component is in two parts. One that “by reason of the matters pleaded in paragraphs 19 to 26 and 35, 36 and 40” of the FASOC, Elanor had a reasonable expectation that the respondents would have disclosed to it “if any of the Food Court Tenants were in arrears of more than 30 days during the period December 2016 to October 2017”. The other, that the failure of the respondents to disclose the matters at [46(a)-(g)] of the FASOC “gave rise to a reasonable expectation” on its part that “none of the Food Court Tenants were in arrears of more than 30 days during the period December 2016 to October 2017”.

173    Paragraphs [19] to [26] of the FASOC concern the access granted by Elanor to the documents in the data room between 18 August and 15 September 2017, as well as the 30 August Meeting. The Tenant Arrears Reports for the period December 2016 to July 2017 are mentioned, and the July Arrears Report is emphasised. Paragraphs [35] and [36] reference provision of the October Arrears Report and the October incentive schedule provided to Elanor’s solicitor on 27 October 2017. As I have explained, the October documents are simply irrelevant to the decision-making of Elanor to enter into the Sale Contract, and no attempt has been made to lay out a case in the evidence as to what would have been done to end that contract in the event that relevant information had later been disclosed and that Elanor had been misled. Paragraph [40] is a reference to the passing base rent per annum in the tenancy schedule and to the outstanding incentive schedule, each as attached to the Sale Contract.

174    Elanor fails to explain how these documents gave rise to a reasonable expectation that the fact of arrears of more than 30 days by any of the Food Court Tenants between December 2016 and October 2017, would have been disclosed to it. The fact is that Elanor had the benefit of the due diligence material and period of investigation, was itself a sophisticated investor and engaged Mr Hamilton as an experienced person in the undertaking of due diligence assessments, particularly for shopping centres. It was open to Elanor throughout the due diligence period to seek more documents and to ask specific questions. Relevantly, it did neither.

175    Elanor’s closing submission draws attention to the decision of the NSW Court of Appeal in Midcoast County Council t/as Midcoast Water v Reed Constructions Australia Pty Ltd [2011] NSWCA 268 at [50]-[51] where Meagher JA, with the concurrence of Beazley and Basten JJA observed:

The fact that in particular circumstances a person had the opportunity to but did not take steps which might or would have corrected a misapprehension or wrong assumption can be relevant to an inquiry as to whether conduct which includes silence should be characterised as misleading or deceptive…… It may also be relevant to an inquiry as to whether loss or damage has been suffered by that conduct….

However, the outcome of each of these inquiries is fact dependent and it certainly does not follow, if a person does not make an inquiry which he or she could or might otherwise have made, that the conduct should not be characterised as misleading or deceptive or that any damage or loss was not suffered by such conduct. It is unnecessary to consider further this argument of Midcoast Water because, even if accepted, it does not affect the outcome of the appeal.

(Citations omitted.)

176    That case did not concern an expression of interest, an exclusive dealing period, the provision of documents for the purpose of undertaking a due diligence assessment or a sophisticated property investor. To establish that, Elanor had a reasonable expectation that it would receive specific disclosure as to any of the Food Court Tenants being in arrears for more than 30 days throughout the period from December 2016 to October 2017, considerably more is required beyond the facts relied on. Alceon was obliged to answer questions put to it through the question-and-answer facility in the data room. A wrong answer may have exposed it to liability. However, in the circumstances of this case, Elanor has not established that Alceon as the contracting party or CPRAM as its agent were obliged in the “commercial negotiations to volunteer information which will be of assistance to” Elanor: Miller at [22] (French CJ and Kiefel J).

177    The second component of this claim is even more difficult to understand. It is contended that by reason of the matters pleaded in paragraph 42 of the FASOC by multiple combinations of facts relating to lease commencement dates, rental deferrals under incentive deeds and further undisclosed commencement date deferrals, that Elanor had a reasonable expectation that Alceon and or CPRAM would have (in summary) disclosed:

(1)    If the rent commencement dates for Dizzy Dukes, Burrito Bar, Mass Nutrition, Kebab Express, Mumbai Blues, Thai Me Down and Red Noodle Kitchen was later than set out in the incentive deed for each tenant (Deferred Tenants);

(2)    If there were rental arrears for months after July 2017 and until October 2017 together with the details of any arrears incurred by the Deferred Tenants between August and October 2017; and

(3)    If any of the Food Court Tenants had failed to provide a bank guarantee or alternative security prior to the commence dates of their leases.

178    To this there is added a further pleading that the failure by Alceon and/or CPRAM to make disclosure of the actual rent commencement dates (where the arrears reports had shown that they had paid all rent and other charges due since the commencement date listed in their respective incentive deeds and where arrears reports for August, September and October 2017 were not provided) then these matters gave rise to a reasonable belief by it that the rent commencement dates were in accordance with each of the Incentive deeds and that none of the deferred tenants were in rental arrears from the commencement dates listed in the Incentive deeds.

179    In all there are 21 separate contentions in this component of the pleading spread across seven separate tenants. The pleading is convoluted and unsatisfactory: more so where no attempt is made by Elanor in closing submissions to explain it. Elanor makes the generalised submission that none of the deferred rental commencement dates were recorded in writing between the parties and were not otherwise disclosed in the data room. From that premise, Elanor submits that:

In those circumstances, it was reasonable to expect that, when the due diligence was being undertaken and none of the leases, incentive deeds or other documents disclosed that deferral of rent commencement dates, that such matters would be expressly brought to the attention of Elanor or Mr Hamilton. This would enable all other information in the Data Room, in particular the arrears reports, to be assessed in circumstances where more limited operations had occurred than had otherwise been disclosed.

It was also reasonable to expect Alceon to provide additional arrears reports for August and September and October 2017 when, without notice and contrary to the terms of the leases and the incentive deeds, it varied the terms of such deeds to defer the rent commencement dates.

180    CPRAM in its closing submission pinpointed the problem with this claim:

This pleading is unclear. No causal link is pleaded as to how the allegations referred to in the particulars to paragraph 42 would lead to the expectations pleaded in paragraphs 46E(a) – (c) that rental deferments should be disclosed, that any “rental arrears” following July 2017 would be disclosed and that if there were “rental arrears” for the tenants following 2017 that they would be disclosed. There is also the oddity of the pleaded expectation that rental arrears for September 2017 and October 2017 would be disclosed, despite the fact that the board having on 9 September 2017 resolved to enter into the transaction to purchase the Centre and Elanor was bound by the P&CO executed on 15 September 2017.

181    I agree with that submission. It is also the case that rent was deferred only for six Food Court Tenants for between two weeks and one month, save for Redcliffe Noodle Kitchen where deferral was six weeks and six days. Alceon suffered the loss of any deferred rent to the date of settlement. Thereafter, it was required to adjust on settlement the cost of any incentive that operated after 1 November 2017 pursuant to cl 16.13 of the Sale Contract. In those circumstances, Elanor has not established the reasonable expectation that it relies on.

Which misleading conduct claims fail at the outset?

182    In summary, when examined individually, I have concluded that the pleaded representations are not in several respects made out and nor is the conduct by silence case. In summary the case of Elanor:

(1)    Fails on the express, implied and oral Commencement Date Representations claims;

(2)    Relies on reading the ambiguous July Arrears Report in one particular way as conveying the express representation that it was a correct and complete statement of all amounts not paid by the Food Court Tenants in the month of July 2017 from all previously rendered invoices and that all amounts invoiced in any prior month had otherwise been paid in full. That claim is not pressed for Kebab Express, Thai Me Down or Mass Nutrition. That is a lot to read into that document, for the six remaining Food Court Tenants and it would be an error to accept the applicant’s case on this point by paying attention only to this report without examining all of the relevant circumstances;

(3)    Fails on the implied Arrears Representations claim;

(4)     To a limited extent is made out on the oral Arrears Representations claim in that Mr Shah at the 30 August Meeting, when asked relevant questions about tenancy arrears, did not identify any Food Court tenant as having any arrears as at 30 August 2017, noting that this claim is not pressed for Kebab Express, Thai Me Down or Mass Nutrition;

(5)    Fails on the Rental Return Representation case; and

(6)    Fails on the non-disclosure case.

Has Elanor established falsity?

183    To establish that the Arrears Representations were objectively likely to lead into error, Elanor pleads that they were “incorrect and understated”.

184    The evidence relied on to prove this proposition commences with the very detailed particularisation of what Elanor says was the true position for each of the Food Court Tenants at [42] of the FASOC. In turn this relies on a large body of evidence in the form of Savills records, emails and other documents cross-referenced to paragraphs [99]-[221] of the first affidavit of Mr McNaughton, which paragraphs it will be recalled were admitted into evidence as relevant only to the understanding of Mr McNaughton. The documents are in the court book and form part of the tender of Elanor. Fortunately, I am relieved of performing the tedious and time-consuming task of individually reconciling those documents to make findings of fact, as two accountants have undertaken a reconciliation and produced a joint expert report. Despite that report, in certain aspects, Elanor invites interrogation of some of the underlying documents which, on its submission, do not establish some of the assumptions made by the respondents’ expert, Mr Hellen and to that extent submits that findings should be made in accordance with the source documents.

185    Mr Hellen was engaged jointly by the respondents to undertake four reconciliations:

(1)    a reconciliation of the total rental charges paid and received;

(2)    a reconciliation of the rent paid (including any charges and applicable levies) by each Food Court Tenant the end of each month, identifying and explaining any arrears;

(3)    a reconciliation of:

(1)    the total incentives and abatements for each of the Food Court Tenants as per the Incentive Deeds; and

(2)    the total incentives and abatements received by and/or applied to each of the Food Court Tenants;

(4)    a reconciliation of any security deposits paid.

186    He was also instructed to consider and comment on:

(1)    Whether any Food Court Tenants received an abatement of rent (including any outgoings or other charges) or incentive above or beyond that provided for in their respective Incentive Deeds. If so identify and explain the amount;

(2)    the extent to which any Food Court Tenant was in arrears in the period December 2016 to October 2017;

(3)    As well as consider the Tenant Arrears report and comment on:

(i)    What the Tenant Arrears Reports purported to represent; and

(ii)    In light of the reconciliations you have performed, whether the Tenant Arrears Reports accurately recorded what they purported to represent.

187    In response, Mr Hellen prepared a report dated 3 May 2023. In section 2, he set out his summary findings as follows:

2     SUMMARY OF FINDINGS

2.1.     Summary and Conclusions

Tenant Ledgers and Arrears

2.1.1    Based on the information available to me, in Section 6 of my Report I have reconstructed the total rental charges paid and received and the balance at the end of each month from December 2016 to October 2017. Details of those amounts for each tenant is set out on Schedule 1 and is summarised in the table below:

2.1.2    In relation to Burrito Bar and Sushi Kuni, I have provided a Scenario A and B due to:

•    Non-cash credits that Burrito Bar was entitled to at the commencement of its lease, but which were not applied until September 2017.

•    The balance of the security deposit for the original (previous) operator of Sushi Kuni was not refunded but applied to the arrears of that tenant. Whilst the lease was assigned effective 30 April 2017, the monies were not allocated to the tenant ledger until September 2017.

In each instance,

•    Scenario A reflects what was actually recorded in Savills’ MRI system, and

•    Scenario B reflects the impact of applying either the non-cash credit or the balance of the security deposit to the month it would appear to properly relate to.

Total Incentives and abatements

2.1.3    In Section 7 of my Report I reconciled:

(1)    the total incentives and abatements for each of the Food Court Tenants as per the Incentive deeds; and

(2)    the total incentives and abatements received by and/or applied to each of the Food Court Tenants.

2.1.4    My analysis indicates that the Food Court Tenants did not receive non-cash credits in excess of their entitlements under the Incentive Deed.

2.1.5    The timing of when the non-cash credits were applied to the tenant’s ledgers was not always strictly in accordance with the terms of the Incentive Deeds. However, this would appear to have been to the disadvantage of the tenants rather than the landlord.

Security deposits and bank guarantees

2.1.6    In Section 6 of my Report I accounted for all security deposits in the process of my reconstruction of the rental accounts.

2.1.7    I am satisfied that all security deposits and bank guarantees were paid or evidence submitted by 31 October 2017.

2.1.8    My review of the ledger provided by Savills indicates that a deposit for Redcliffe Noodle Kitchen of $744 has been omitted.

Tenant Arrears Reports

2.1.9    The Tenant Arrears Reports provide a detailed current status of all amounts invoiced and not paid by the tenant (account balance) including the arrears position.

2.1.10    These reports are a snap shot of the tenant’s account, taking into account information recorded up to the date the report is printed and not necessarily for an entire month.

2.1.11    Based on the Tenant Arrears Reports I examined, they appear to accurately record what they purport to represent.

188    Mr Hellen was instructed to make certain assumptions which are controversial and which arise from his analysis of the end of month MRI reports together with copies of bank statements. As explained by Mr Hellen, in order to allocate cash receipts to tenant accounts he relied upon certain comments, in the form of annotations to the documents, applied by Mr Neil Shah which identified and allocated various receipts. Mr Neil Shah did not give evidence and the submission of Mr Fernon is that I should not make findings of fact that rest on those untested assumptions where there is a dispute.

189    Mr Gwynne was engaged by Elanor not to undertake an independent reconciliation similar to Mr Hellen, but to review and comment upon the rental arrears calculations and analysis of Mr Hellen. In response, Mr Gwynne produced a report dated 21 June 2023. His summary analysis in section 2 is:

2.0 SUMMARY

2.1    Based on my review of the Hellen Report and of the documentation at BH-1, I note the following:

    Bel Cibo

2.2    Mr Hellen incorrectly allocated the Security Deposit when calculating rental arrears which causes his calculation at paragraph 6.2.1 of his report to incorrectly record Bel Cibo as being in advance in September 2017 & October 2017.

2.3    In addition, I cannot identify the source of 2 payments allocated by Mr Hellen in his calculation.

Burrito Bar

2.4    Mr Hellen’s calculation in paragraph 6.3.2 is supported by the documentation at BH-1.

2.5    I note that the arrears position in September 2017 is after an allowance for non-cash credits which were raised in October 2017.

Dizzy Dukes

2.6    There is a difference of the arrears calculations at paragraph 6.4.1 of the Hellen Report and as per the Documentation at BH-1. This is due in part to the allocation of part of the security deposit to rent and other payments the source of which is not clear.

Kebab Express

2.7    Mr Hellen incorrectly allocated the Security Deposit when calculating rental arrears which causes his calculation at paragraph 6.5.1 of his report to incorrectly record Kebab Express as being in advance. The documentation at BH-1 indicates that by October 2017, Kebab Express was up to date.

Mass Nutrition

2.8    The table at paragraph 6.6.1 of the Hellen Report does not correctly record Mr Hellen’s analysis at schedule 5.1.

2.9    I otherwise note that Mr Hellen’s analysis at Schedule 5.1 is in line with the documentation at BH-1

Mumbai Blue

2.10    Mr Hellen incorrectly allocated the Security Deposit when calculating rental arrears which causes his calculation at paragraph 6.7.1 of his report to incorrectly record the extent to which Mumbai Blue was in advance. IN [sic] addition his calculation of advance includes a payment the source of which cannot be identified.

Redcliffe Noodle Kitchen

2.11    Mr Hellen’s calculation of the advance position of Redcliffe Noodle Kitchen includes payments allocated to rent however the source of those payments is not evident in the documentation at BH-1. Therefore the advance position calculated by him might be overstated.

Thai Me Down

2.12    Mr Hellen’s calculation at 6.10.1 is in line with the documentation at BH-1

Sushi Kuni

2.13    Mr Hellen’s calculation at paragraph 6.9.3 is in line with the documentation at BH-1.

2.14    I note that his calculations include the application of the security deposit of the prior operator of Sushi Kuni to clear arrears, some of which were accrued by the new operator.

190    Mr Hellen and Mr Gwynne attended a joint expert conclave before a registrar of this Court, and in consequence produced a joint experts’ report dated 30 June 2023. They reached significant agreement in relation to a number of disputed issues. Through their discussion, Mr Hellen made certain adjustments to the schedules of his report relating to Bel Cibo, Kebab Express, Mumbai Blues and Redcliffe Noodle Kitchen. An important matter that the experts agreed upon is recorded in the joint report: